Swaraj Engines' (NSE:SWARAJENG) 39% CAGR outpaced the company's earnings growth over the same five-year period

We think all investors should try to buy and hold high quality multi-year winners. And we've seen some truly amazing gains over the years. Don't believe it? Then look at the Swaraj Engines Limited (NSE:SWARAJENG) share price. It's 325% higher than it was five years ago. This just goes to show the value creation that some businesses can achieve. It's also good to see the share price up 37% over the last quarter.

On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.

Our free stock report includes 1 warning sign investors should be aware of before investing in Swaraj Engines. Read for free now.

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).

During five years of share price growth, Swaraj Engines achieved compound earnings per share (EPS) growth of 17% per year. This EPS growth is slower than the share price growth of 34% 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.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that Swaraj Engines has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Swaraj Engines the TSR over the last 5 years was 412%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that Swaraj Engines shareholders have received a total shareholder return of 78% over one year. That's including the dividend. That gain is better than the annual TSR over five years, which is 39%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Swaraj Engines better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Swaraj Engines you should know about.

But note: Swaraj Engines may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.