Chalet Hotels (NSE:CHALET) advances 3.9% this week, taking five-year gains to 360%

It hasn't been the best quarter for Chalet Hotels Limited (NSE:CHALET) shareholders, since the share price has fallen 10% in that time. But that does not change the realty that the stock's performance has been terrific, over five years. In that time, the share price has soared some 359% higher! So it might be that some shareholders are taking profits after good performance. Only time will tell if there is still too much optimism currently reflected in the share price.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

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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.

During the last half decade, Chalet Hotels became profitable. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Chalet Hotels share price is up 148% in the last three years. In the same period, EPS is up 182% per year. This EPS growth is higher than the 35% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

It is of course excellent to see how Chalet Hotels has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Chalet Hotels stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

We're pleased to report that Chalet Hotels shareholders have received a total shareholder return of 2.2% over one year. That's including the dividend. However, that falls short of the 36% TSR per annum it has made for shareholders, each year, over five years. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 1 warning sign for Chalet Hotels that you should be aware of before investing here.

Of course Chalet Hotels 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.

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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.