Universal Cables (NSE:UNIVCABLES) stock performs better than its underlying earnings growth over last five years

Long term investing can be life changing when you buy and hold the truly great businesses. And highest quality companies can see their share prices grow by huge amounts. Just think about the savvy investors who held Universal Cables Limited (NSE:UNIVCABLES) shares for the last five years, while they gained 548%. If that doesn't get you thinking about long term investing, we don't know what will. It's also up 25% in about a month. We note that Universal Cables reported its financial results recently; luckily, you can catch up on the latest revenue and profit numbers in our company report. Anyone who held for that rewarding ride would probably be keen to talk about it.

The past week has proven to be lucrative for Universal Cables investors, so let's see if fundamentals drove the company's five-year performance.

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In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).

Over half a decade, Universal Cables managed to grow its earnings per share at 28% a year. This EPS growth is slower than the share price growth of 45% 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 company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

This free interactive report on Universal Cables' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Universal Cables' TSR for the last 5 years was 566%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that Universal Cables shareholders have received a total shareholder return of 41% over one year. Of course, that includes the dividend. Having said that, the five-year TSR of 46% a year, is even better. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Universal Cables has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

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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.