Welspun Living (NSE:WELSPUNLIV) stock performs better than its underlying earnings growth over last five years

Welspun Living Limited (NSE:WELSPUNLIV) shareholders might be concerned after seeing the share price drop 25% in the last quarter. But over five years returns have been remarkably great. Indeed, the share price is up a whopping 531% in that time. Arguably, the recent fall is to be expected after such a strong rise. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain. Anyone who held for that rewarding ride would probably be keen to talk about it.

Since it's been a strong week for Welspun Living shareholders, let's have a look at trend of the longer term fundamentals.

Check out our latest analysis for Welspun Living

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).

During five years of share price growth, Welspun Living achieved compound earnings per share (EPS) growth of 15% per 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).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Welspun Living the TSR over the last 5 years was 535%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in Welspun Living had a tough year, with a total loss of 11% (including dividends), against a market gain of about 1.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 45%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Even so, be aware that Welspun Living is showing 1 warning sign in our investment analysis , you should know about...

But note: Welspun Living 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.