Investing in Aditya Birla Capital (NSE:ABCAPITAL) five years ago would have delivered you a 139% gain

It might be of some concern to shareholders to see the Aditya Birla Capital Limited (NSE:ABCAPITAL) share price down 13% in the last month. But in stark contrast, the returns over the last half decade have impressed. Indeed, the share price is up an impressive 139% in that time. Generally speaking the long term returns will give you a better idea of business quality than short periods can. Only time will tell if there is still too much optimism currently reflected in the share price.

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.

See our latest analysis for Aditya Birla Capital

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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, Aditya Birla Capital achieved compound earnings per share (EPS) growth of 26% per year. This EPS growth is higher than the 19% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that Aditya Birla Capital has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Aditya Birla Capital's financial health with this free report on its balance sheet.

A Different Perspective

Aditya Birla Capital shareholders are up 19% for the year. But that return falls short of the market. On the bright side, the longer term returns (running at about 19% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Aditya Birla Capital (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.

Of course Aditya Birla Capital 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.