L&T Finance Holdings (NSE:L&TFH) sheds ₹11b, company earnings and investor returns have been trending downwards for past three years

For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term L&T Finance Holdings Limited (NSE:L&TFH) shareholders, since the share price is down 39% in the last three years, falling well short of the market return of around 75%. And the share price decline continued over the last week, dropping some 5.2%.

After losing 5.2% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

View our latest analysis for L&T Finance Holdings

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).

L&T Finance Holdings saw its EPS decline at a compound rate of 25% per year, over the last three years. This fall in the EPS is worse than the 15% compound annual share price fall. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

Dive deeper into L&T Finance Holdings' key metrics by checking this interactive graph of L&T Finance Holdings's earnings, revenue and cash flow.

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between L&T Finance Holdings' total shareholder return (TSR) and its 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. Dividends have been really beneficial for L&T Finance Holdings shareholders, and that cash payout explains why its total shareholder loss of 33%, over the last 3 years, isn't as bad as the share price return.

A Different Perspective

L&T Finance Holdings shareholders are up 23% for the year. Unfortunately this falls short of the market return. On the bright side, that's still a gain, and it's actually better than the average return of 0.5% over half a decade This could indicate that the company is winning over new investors, as it pursues its strategy. 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. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for L&T Finance Holdings (of which 1 is significant!) you should know about.

Of course L&T Finance Holdings 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 IN exchanges.

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.

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