Stock Analysis

Dr. Lal PathLabs' (NSE:LALPATHLAB) earnings growth rate lags the 17% CAGR delivered to shareholders

Published
NSEI:LALPATHLAB
Source: Shutterstock

It hasn't been the best quarter for Dr. Lal PathLabs Limited (NSE:LALPATHLAB) shareholders, since the share price has fallen 23% in that time. But that doesn't change the fact that the returns over the last five years have been very strong. We think most investors would be happy with the 111% return, over that period. We think it's more important to dwell on the long term returns than the short term returns. Of course, that doesn't necessarily mean it's cheap now. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 30% decline over the last twelve months.

While the stock has fallen 6.4% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

View our latest analysis for Dr. Lal PathLabs

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Over half a decade, Dr. Lal PathLabs managed to grow its earnings per share at 8.6% a year. This EPS growth is lower than the 16% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth. This optimism is visible in its fairly high P/E ratio of 62.33.

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

earnings-per-share-growth
NSEI:LALPATHLAB Earnings Per Share Growth March 15th 2023

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Dr. Lal PathLabs' 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 Dr. Lal PathLabs, it has a TSR of 118% 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

Dr. Lal PathLabs shareholders are down 30% for the year (even including dividends), but the market itself is up 1.0%. 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 17%, 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. It's always interesting to track share price performance over the longer term. But to understand Dr. Lal PathLabs better, we need to consider many other factors. To that end, you should be aware of the 3 warning signs we've spotted with Dr. Lal PathLabs .

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Indian exchanges.

Valuation is complex, but we're helping make it simple.

Find out whether Dr. Lal PathLabs is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis