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The five-year decline in earnings might be taking its toll on Graphite India (NSE:GRAPHITE) shareholders as stock falls 12% over the past week
The Graphite India Limited (NSE:GRAPHITE) share price has had a bad week, falling 12%. But at least the stock is up over the last five years. In that time, it is up 64%, which isn't bad, but is below the market return of 141%. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 20% drop, in the last year.
In light of the stock dropping 12% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.
See our latest analysis for Graphite India
There is no denying that markets are sometimes efficient, but prices do not always reflect 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 five years of share price growth, Graphite India actually saw its EPS drop 7.0% per year.
This means it's unlikely the market is judging the company based on earnings growth. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.
The revenue growth of 1.9% per year hardly seems impressive. So why is the share price up? It's not immediately obvious to us, but a closer look at the company's progress over time might yield answers.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
This free interactive report on Graphite India's balance sheet strength is a great place to start, if you want to investigate the stock further.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Graphite India's TSR for the last 5 years was 79%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Investors in Graphite India had a tough year, with a total loss of 18% (including dividends), against a market gain of about 3.6%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 12%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 3 warning signs we've spotted with Graphite India .
We will like Graphite India better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.
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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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About NSEI:GRAPHITE
Graphite India
Manufactures and sells graphite electrodes, and carbon and graphite specialty products in India and internationally.
Flawless balance sheet, undervalued and pays a dividend.
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