Does Godrej Consumer Products' (NSE:GODREJCP) Share Price Gain of 67% Match Its Business Performance?

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the Godrej Consumer Products Limited (NSE:GODREJCP) share price is up 67% in the last 5 years, clearly besting the market return of around 46% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 3.4% , including dividends .

See our latest analysis for Godrej Consumer Products

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 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, Godrej Consumer Products managed to grow its earnings per share at 8.5% a year. This EPS growth is slower than the share price growth of 11% per year, over the same period. 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 47.68.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Dive deeper into Godrej Consumer Products' key metrics by checking this interactive graph of Godrej Consumer Products's earnings, revenue and cash flow.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Godrej Consumer Products' total shareholder return (TSR) and its share price change, which we've covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Dividends have been really beneficial for Godrej Consumer Products shareholders, and that cash payout contributed to why its TSR of 74%, over the last 5 years, is better than the share price return.

A Different Perspective

Godrej Consumer Products shareholders gained a total return of 3.4% during the year. But that was short of the market average. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 12% over five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. It's always interesting to track share price performance over the longer term. But to understand Godrej Consumer Products better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Godrej Consumer Products you should be aware of.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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

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This article by Simply Wall St is general in nature. 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.
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