Piramal Enterprises (NSE:PEL) Shareholders Have Enjoyed A 61% Share Price Gain

The main point of investing for the long term is to make money. Furthermore, you'd generally like to see the share price rise faster than the market But Piramal Enterprises Limited (NSE:PEL) has fallen short of that second goal, with a share price rise of 61% over five years, which is below the market return. The last year hasn't been great either, with the stock up just 2.7%.

Check out our latest analysis for Piramal Enterprises

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, Piramal Enterprises actually saw its EPS drop 1.0% per year. This was, in part, due to extraordinary items impacting earning in the last twelve months.

So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.

The modest 0.9% dividend yield is unlikely to be propping up the share price. On the other hand, Piramal Enterprises' revenue is growing nicely, at a compound rate of 17% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.

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

If you are thinking of buying or selling Piramal Enterprises stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Piramal Enterprises the TSR over the last 5 years was 77%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Piramal Enterprises shareholders gained a total return of 3.8% during the year. But that return falls short of the market. On the bright side, the longer term returns (running at about 12% a year, over half a decade) look better. Maybe the share price is just taking a breather while the business executes on its growth 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. For example, we've discovered 3 warning signs for Piramal Enterprises (1 can't be ignored!) that you should be aware of before investing here.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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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This article by Simply Wall St is general in nature. 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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