Cholamandalam Financial Holdings'(NSE:CHOLAHLDNG) Share Price Is Down 16% Over The Past Three Years.

Cholamandalam Financial Holdings Limited (NSE:CHOLAHLDNG) shareholders will doubtless be very grateful to see the share price up 35% in the last quarter. But that cannot eclipse the less-than-impressive returns over the last three years. In fact, the share price is down 16% in the last three years, falling well short of the market return.

See our latest analysis for Cholamandalam Financial Holdings

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 the unfortunate three years of share price decline, Cholamandalam Financial Holdings actually saw its earnings per share (EPS) improve by 11% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.

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.

The modest 0.1% dividend yield is unlikely to be guiding the market view of the stock. We note that, in three years, revenue has actually grown at a 19% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Cholamandalam Financial Holdings further; while we may be missing something on this analysis, there might also be an opportunity.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We know that Cholamandalam Financial Holdings has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Cholamandalam Financial Holdings will earn in the future (free profit forecasts).

A Different Perspective

Over the last year Cholamandalam Financial Holdings shareholders have received a TSR of 1.3%. It's always nice to make money but this return falls short of the market return which was about 23% for the year. The silver lining is that the recent rise is far preferable to the annual loss of 5% that shareholders have suffered over the last three years. It could well be that the business is stabilizing. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Cholamandalam Financial Holdings (at least 2 which make us uncomfortable) , and understanding them should be part of your investment process.

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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.

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