KEI Industries' (NSE:KEI) investors will be pleased with their fantastic 856% return over the last five years

We think all investors should try to buy and hold high quality multi-year winners. And highest quality companies can see their share prices grow by huge amounts. For example, the KEI Industries Limited (NSE:KEI) share price is up a whopping 846% in the last half decade, a handsome return for long term holders. This just goes to show the value creation that some businesses can achieve. The last week saw the share price soften some 1.8%. It really delights us to see such great share price performance for investors.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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, KEI Industries achieved compound earnings per share (EPS) growth of 21% per year. This EPS growth is lower than the 57% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth. This optimism is visible in its fairly high P/E ratio of 49.91.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that KEI Industries has improved its bottom line lately, but is it going to grow revenue? Check if analysts think KEI Industries will grow revenue in the future.

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, KEI Industries' TSR for the last 5 years was 856%, 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

While the broader market lost about 5.4% in the twelve months, KEI Industries shareholders did even worse, losing 15% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 57% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

Of course KEI Industries may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.