V-Guard Industries' (NSE:VGUARD) earnings growth rate lags the 12% CAGR delivered to shareholders

While V-Guard Industries Limited (NSE:VGUARD) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 20% in the last quarter. But at least the stock is up over the last five years. However we are not very impressed because the share price is only up 69%, less than the market return of 137%.

While the stock has fallen 13% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

See our latest analysis for V-Guard Industries

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 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, V-Guard Industries managed to grow its earnings per share at 6.3% a year. This EPS growth is slower than the share price growth of 11% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth. This optimism is visible in its fairly high P/E ratio of 49.57.

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

We know that V-Guard Industries has improved its bottom line lately, but is it going to grow revenue? Check if analysts think V-Guard Industries will grow revenue in the future.

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 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, V-Guard Industries' TSR for the last 5 years was 72%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that V-Guard Industries has rewarded shareholders with a total shareholder return of 8.1% in the last twelve months. That's including the dividend. However, that falls short of the 12% TSR per annum it has made for shareholders, each year, over five years. 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. For instance, we've identified 1 warning sign for V-Guard Industries that you should be aware of.

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.