Reflecting on Praj Industries' (NSE:PRAJIND) Share Price Returns Over The Last Year

While not a mind-blowing move, it is good to see that the Praj Industries Limited (NSE:PRAJIND) share price has gained 27% in the last three months. But that is minimal compensation for the share price under-performance over the last year. In fact, the price has declined 36% in a year, falling short of the returns you could get by investing in an index fund.

See our latest analysis for Praj Industries

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.

Unfortunately Praj Industries reported an EPS drop of 31% for the last year. This proportional reduction in earnings per share isn't far from the 36% decrease in the share price. Therefore one could posit that the market has not become more concerned about the company, despite the lower EPS. Rather, the share price is remains a similar multiple of the EPS, suggesting the outlook remains the same.

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

It might be well worthwhile taking a look at our free report on Praj Industries' earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Praj Industries, it has a TSR of -33% for the last year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Praj Industries shareholders are down 33% for the year (even including dividends), but the market itself is up 7.3%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.5% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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 Praj Industries is showing 2 warning signs in our investment analysis , you should know about...

We will like Praj Industries better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.

If you’re looking to trade Praj Industries, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.