Elgi Rubber (NSE:ELGIRUBCO) pulls back 12% this week, but still delivers shareholders incredible 51% CAGR over 5 years

It's been a soft week for Elgi Rubber Company Limited (NSE:ELGIRUBCO) shares, which are down 12%. But that doesn't change the fact that the returns over the last half decade have been spectacular. In fact, during that period, the share price climbed 685%. Impressive! So it might be that some shareholders are taking profits after good performance. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain. It really delights us to see such great share price performance for investors.

Although Elgi Rubber has shed ₹836m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

Check out our latest analysis for Elgi Rubber

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the last half decade, Elgi Rubber became profitable. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. Indeed, the Elgi Rubber share price has gained 210% in three years. In the same period, EPS is up 102% per year. This EPS growth is higher than the 46% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Dive deeper into Elgi Rubber's key metrics by checking this interactive graph of Elgi Rubber's earnings, revenue and cash flow.

What About The Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Elgi Rubber's total shareholder return (TSR) and its share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Dividends have been really beneficial for Elgi Rubber shareholders, and that cash payout contributed to why its TSR of 695%, over the last 5 years, is better than the share price return.

A Different Perspective

It's good to see that Elgi Rubber has rewarded shareholders with a total shareholder return of 95% in the last twelve months. That gain is better than the annual TSR over five years, which is 51%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Elgi Rubber better, we need to consider many other factors. To that end, you should learn about the 4 warning signs we've spotted with Elgi Rubber (including 2 which are potentially serious) .

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Indian exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.