Metropolis Healthcare's (NSE:METROPOLIS) five-year earnings growth trails the impressive shareholder returns

When you buy a stock there is always a possibility that it could drop 100%. But on a lighter note, a good company can see its share price rise well over 100%. Long term Metropolis Healthcare Limited (NSE:METROPOLIS) shareholders would be well aware of this, since the stock is up 106% in five years. On top of that, the share price is up 22% in about a quarter. But this move may well have been assisted by the reasonably buoyant market (up 11% in 90 days).

Since the stock has added ₹7.6b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Metropolis Healthcare

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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, Metropolis Healthcare managed to grow its earnings per share at 0.7% a year. This EPS growth is lower than the 16% 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. That's not necessarily surprising considering the five-year track record of earnings growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 83.63.

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

This free interactive report on Metropolis Healthcare's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. In the case of Metropolis Healthcare, it has a TSR of 111% 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

Metropolis Healthcare shareholders are up 42% for the year (even including dividends). But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 16% per year over five year. This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand Metropolis Healthcare better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Metropolis Healthcare you should know about.

We will like Metropolis Healthcare 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com