Dhampur Sugar Mills' (NSE:DHAMPURSUG) earnings trajectory could turn positive as the stock swells 11% this past week

Dhampur Sugar Mills Limited (NSE:DHAMPURSUG) shareholders should be happy to see the share price up 11% in the last week. But that is small recompense for the exasperating returns over three years. In that time, the share price dropped 76%. So the improvement may be a real relief to some. Perhaps the company has turned over a new leaf.

On a more encouraging note the company has added ₹824m 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.

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 the three years that the share price fell, Dhampur Sugar Mills' earnings per share (EPS) dropped by 38% each year. So do you think it's a coincidence that the share price has dropped 38% per year, a very similar rate to the EPS? We don't. So it seems like sentiment towards the stock hasn't changed all that much over time. In this case, it seems that the EPS is guiding the share price.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What About The Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Dhampur Sugar Mills' total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that Dhampur Sugar Mills' TSR, which was a 56% drop over the last 3 years, was not as bad as the share price return.

A Different Perspective

While the broader market gained around 5.6% in the last year, Dhampur Sugar Mills shareholders lost 41%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 26% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Take risks, for example - Dhampur Sugar Mills has 4 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

We will like Dhampur Sugar Mills better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.