The past three-year earnings decline for Piramal Enterprises (NSE:PEL) likely explains shareholders long-term losses

This week we saw the Piramal Enterprises Limited (NSE:PEL) share price climb by 12%. But that cannot eclipse the less-than-impressive returns over the last three years. After all, the share price is down 55% in the last three years, significantly under-performing the market.

On a more encouraging note the company has added ₹25b to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.

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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 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.

Piramal Enterprises became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. So given the share price is down it's worth checking some other metrics too.

The modest 1.0% dividend yield is unlikely to be guiding the market view of the stock. We think that the revenue decline over three years, at a rate of 14% per year, probably had some shareholders looking to sell. And that's not surprising, since it seems unlikely that EPS growth can continue for long in the absence of revenue growth.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

We know that Piramal Enterprises has improved its bottom line lately, but what does the future have in store? So we recommend checking out this free report showing consensus forecasts

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Piramal Enterprises' TSR for the last 3 years was -17%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that Piramal Enterprises shareholders have received a total shareholder return of 17% over one year. Of course, that includes the dividend. However, that falls short of the 17% TSR per annum it has made for shareholders, each year, over five years. 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 is concerning!) that you should be aware of before investing here.

But note: Piramal Enterprises may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.