The five-year decline in earnings might be taking its toll on Vardhman Textiles (NSE:VTL) shareholders as stock falls 4.4% over the past week

The main point of investing for the long term is to make money. Furthermore, you'd generally like to see the share price rise faster than the market. Unfortunately for shareholders, while the Vardhman Textiles Limited (NSE:VTL) share price is up 96% in the last five years, that's less than the market return. Some buyers are laughing, though, with an increase of 34% in the last year.

While the stock has fallen 4.4% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

View our latest analysis for Vardhman Textiles

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

During five years of share price growth, Vardhman Textiles actually saw its EPS drop 4.2% per year.

By glancing at these numbers, we'd posit that the decline in earnings per share is not representative of how the business has changed over the years. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We doubt the modest 0.8% dividend yield is attracting many buyers to the stock. In contrast revenue growth of 11% per year is probably viewed as evidence that Vardhman Textiles is growing, a real positive. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Take a more thorough look at Vardhman Textiles' financial health with this free report on its balance sheet.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Vardhman Textiles the TSR over the last 5 years was 107%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Vardhman Textiles shareholders gained a total return of 35% during the year. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 16% per year over five year. It is possible that returns will improve along with the business fundamentals. 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 example, we've discovered 2 warning signs for Vardhman Textiles that you should be aware of before investing here.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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.