Varun Beverages' (NSE:VBL) five-year total shareholder returns outpace the underlying earnings growth

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 Varun Beverages Limited (NSE:VBL) share price has soared 899% over five years. This just goes to show the value creation that some businesses can achieve. Then again, the 8.8% share price decline hasn't been so fun for shareholders. This could be related to the soft market, with stocks down around 0.7% in the last month. Anyone who held for that rewarding ride would probably be keen to talk about it.

Since the long term performance has been good but there's been a recent pullback of 5.8%, let's check if the fundamentals match the share price.

Check out our latest analysis for Varun Beverages

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

Over half a decade, Varun Beverages managed to grow its earnings per share at 41% a year. This EPS growth is lower than the 58% average annual increase in the share price. 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. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 76.25.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Varun Beverages has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Varun Beverages' TSR for the last 5 years was 916%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that Varun Beverages has rewarded shareholders with a total shareholder return of 58% in the last twelve months. That's including the dividend. Having said that, the five-year TSR of 59% a year, is even better. It's always interesting to track share price performance over the longer term. But to understand Varun Beverages better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Varun Beverages (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.