Avadh Sugar & Energy (NSE:AVADHSUGAR) investors are up 15% in the past week, but earnings have declined over the last five years

We think all investors should try to buy and hold high quality multi-year winners. And highest quality companies can see their share prices grow by huge amounts. To wit, the Avadh Sugar & Energy Limited (NSE:AVADHSUGAR) share price has soared 305% over five years. This just goes to show the value creation that some businesses can achieve. It's also good to see the share price up 28% over the last quarter.

Since it's been a strong week for Avadh Sugar & Energy shareholders, let's have a look at trend of the longer term fundamentals.

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To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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, Avadh Sugar & Energy actually saw its EPS drop 8.8% per year.

Essentially, it doesn't seem likely that investors are focused on EPS. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We doubt the modest 1.8% dividend yield is attracting many buyers to the stock. The revenue growth of 1.0% per year hardly seems impressive. So it seems one might have to take closer look at earnings and revenue trends to see how they might influence the share price.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Avadh Sugar & Energy the TSR over the last 5 years was 340%, 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

While the broader market gained around 4.9% in the last year, Avadh Sugar & Energy shareholders lost 3.4% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 34%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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 instance, we've identified 2 warning signs for Avadh Sugar & Energy (1 makes us a bit uncomfortable) that you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.