Polycab India's (NSE:POLYCAB) five-year total shareholder returns outpace the underlying earnings growth

We think all investors should try to buy and hold high quality multi-year winners. While not every stock performs well, when investors win, they can win big. Don't believe it? Then look at the Polycab India Limited (NSE:POLYCAB) share price. It's 766% higher than it was five years ago. This just goes to show the value creation that some businesses can achieve. On the other hand, the stock price has retraced 3.5% in the last week. However, this might be related to the overall market decline of 0.2% in a week. It really delights us to see such great share price performance for investors.

While the stock has fallen 3.5% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

We check all companies for important risks. See what we found for Polycab India in our free report.

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

Over half a decade, Polycab India managed to grow its earnings per share at 21% a year. This EPS growth is slower than the share price growth of 54% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

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

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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 Polycab India the TSR over the last 5 years was 785%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While the broader market gained around 3.4% in the last year, Polycab India shareholders lost 12% (even including dividends). 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 55%, 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. 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 Polycab India 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.