Iris Clothings' (NSE:IRISDOREME) five-year earnings growth trails the enviable shareholder returns

For many, the main point of investing in the stock market is to achieve spectacular returns. While the best companies are hard to find, but they can generate massive returns over long periods. To wit, the Iris Clothings Limited (NSE:IRISDOREME) share price has soared 680% over five years. And this is just one example of the epic gains achieved by some long term investors. It's also good to see the share price up 20% over the last quarter. Anyone who held for that rewarding ride would probably be keen to talk about it.

Since the stock has added ₹927m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, Iris Clothings achieved compound earnings per share (EPS) growth of 32% per year. This EPS growth is lower than the 51% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 45.83.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

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

What About The Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Iris Clothings' total shareholder return (TSR) and its 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. We note that Iris Clothings' TSR, at 961% is higher than its share price return of 680%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.

A Different Perspective

It's good to see that Iris Clothings has rewarded shareholders with a total shareholder return of 56% in the last twelve months. However, that falls short of the 60% TSR per annum it has made for shareholders, each year, over five years. It's always interesting to track share price performance over the longer term. But to understand Iris Clothings better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Iris Clothings (at least 1 which is concerning) , and understanding them should be part of your investment process.

Of course Iris Clothings 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.

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

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.