Honda India Power Products' (NSE:HONDAPOWER) five-year earnings growth trails the 26% YoY shareholder returns

When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. One great example is Honda India Power Products Limited (NSE:HONDAPOWER) which saw its share price drive 198% higher over five years. It's also good to see the share price up 22% over the last quarter. But this could be related to the strong market, which is up 9.5% in the last three months.

On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.

See our latest analysis for Honda India Power Products

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, Honda India Power Products achieved compound earnings per share (EPS) growth of 11% per year. This EPS growth is slower than the share price growth of 24% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Honda India Power Products the TSR over the last 5 years was 214%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Honda India Power Products shareholders gained a total return of 25% during the year. But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 26% per year for five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. It's always interesting to track share price performance over the longer term. But to understand Honda India Power Products better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Honda India Power Products , and understanding them should be part of your investment process.

But note: Honda India Power Products may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.