Tata Investment's (NSE:TATAINVEST) five-year total shareholder returns outpace the underlying earnings growth

By
Simply Wall St
Published
February 23, 2022
NSEI:TATAINVEST
Source: Shutterstock

When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But when you pick a company that is really flourishing, you can make more than 100%. Long term Tata Investment Corporation Limited (NSE:TATAINVEST) shareholders would be well aware of this, since the stock is up 124% in five years. In the last week shares have slid back 6.2%.

Although Tata Investment has shed ₹4.5b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

See our latest analysis for Tata Investment

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During five years of share price growth, Tata Investment achieved compound earnings per share (EPS) growth of 1.3% per year. This EPS growth is slower than the share price growth of 17% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

earnings-per-share-growth
NSEI:TATAINVEST Earnings Per Share Growth February 23rd 2022

Dive deeper into Tata Investment's key metrics by checking this interactive graph of Tata Investment's earnings, revenue and cash flow.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Tata Investment, it has a TSR of 150% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's nice to see that Tata Investment shareholders have received a total shareholder return of 27% over the last year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 20%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Tata Investment better, we need to consider many other factors. Even so, be aware that Tata Investment is showing 1 warning sign in our investment analysis , you should know about...

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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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