Pulling back 4.6% this week, Kalpataru Projects International's NSE:KPIL) five-year decline in earnings may be coming into investors focus

Kalpataru Projects International Limited (NSE:KPIL) shareholders might be concerned after seeing the share price drop 11% in the last quarter. 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 374%. Impressive! So it might be that some shareholders are taking profits after good performance. But the real question is whether the business fundamentals can improve over the long term. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 24% decline over the last twelve months.

In light of the stock dropping 4.6% 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.

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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Kalpataru Projects International's earnings per share are down 1.7% per year, despite strong share price performance over five years.

So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We doubt the modest 0.9% dividend yield is attracting many buyers to the stock. In contrast revenue growth of 12% per year is probably viewed as evidence that Kalpataru Projects International is growing, a real positive. In that case, the company may be sacrificing current earnings per share to drive growth.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Kalpataru Projects International, it has a TSR of 405% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Kalpataru Projects International shareholders are down 23% for the year (even including dividends), but the market itself is up 3.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 38%, 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. Even so, be aware that Kalpataru Projects International is showing 2 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...

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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.