Positive earnings growth hasn't been enough to get Tourism Finance Corporation of India (NSE:TFCILTD) shareholders a favorable return over the last three years

By
Simply Wall St
Published
January 18, 2022
NSEI:TFCILTD
Source: Shutterstock

Tourism Finance Corporation of India Limited (NSE:TFCILTD) shareholders should be happy to see the share price up 19% in the last month. But that doesn't change the fact that the returns over the last three years have been less than pleasing. In fact, the share price is down 51% in the last three years, falling well short of the market return.

On a more encouraging note the company has added ₹687m 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.

See our latest analysis for Tourism Finance Corporation of India

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Although the share price is down over three years, Tourism Finance Corporation of India actually managed to grow EPS by 1.7% per year in that time. 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.

It's pretty reasonable to suspect the market was previously to bullish on the stock, and has since moderated expectations. But it's possible a look at other metrics will be enlightening.

With a rather small yield of just 1.2% we doubt that the stock's share price is based on its dividend. With revenue flat over three years, it seems unlikely that the share price is reflecting the top line. We're not entirely sure why the share price is dropped, but it does seem likely investors have become less optimistic about the business.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

earnings-and-revenue-growth
NSEI:TFCILTD Earnings and Revenue Growth January 18th 2022

This free interactive report on Tourism Finance Corporation of India's balance sheet strength is a great place to start, if you want to investigate the stock further.

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 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 Tourism Finance Corporation of India the TSR over the last 3 years was -48%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Tourism Finance Corporation of India shareholders gained a total return of 34% during the year. But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 5% over half a decade It is possible that returns will improve along with the business fundamentals. 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. For instance, we've identified 4 warning signs for Tourism Finance Corporation of India (1 is potentially serious) that you should be aware of.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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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