Those who invested in Avenue Supermarts (NSE:DMART) five years ago are up 240%

When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. One great example is Avenue Supermarts Limited (NSE:DMART) which saw its share price drive 240% higher over five years. In the last week the share price is up 2.7%.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

Check out our latest analysis for Avenue Supermarts

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 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, Avenue Supermarts achieved compound earnings per share (EPS) growth of 22% per year. This EPS growth is slower than the share price growth of 28% 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 favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 125.70.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free interactive report on Avenue Supermarts' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

Avenue Supermarts provided a TSR of 28% over the last twelve months. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 28% per year over five year. This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand Avenue Supermarts better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Avenue Supermarts .

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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.

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