NCC's (NSE:NCC) five-year earnings growth trails the incredible shareholder returns

While NCC Limited (NSE:NCC) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 13% in the last quarter. But that doesn't change the fact that the returns over the last half decade have been spectacular. In that time, the share price has soared some 438% higher! So we don't think the recent decline in the share price means its story is a sad one. But the real question is whether the business fundamentals can improve over the long term.

Since the stock has added ₹6.5b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for NCC

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Over half a decade, NCC managed to grow its earnings per share at 5.4% a year. This EPS growth is slower than the share price growth of 40% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.

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

It is of course excellent to see how NCC has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at NCC's financial health with this free report on its balance sheet.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for NCC the TSR over the last 5 years was 475%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that NCC shareholders have received a total shareholder return of 105% over one year. That's including the dividend. That's better than the annualised return of 42% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand NCC better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for NCC you should know about.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are 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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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.