Godrej Consumer Products (NSE:GODREJCP) grows 5.1% this week, taking five-year gains to 135%

When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But when you pick a company that is really flourishing, you can make more than 100%. One great example is Godrej Consumer Products Limited (NSE:GODREJCP) which saw its share price drive 130% higher over five years. It's also good to see the share price up 20% over the last quarter. But this move may well have been assisted by the reasonably buoyant market (up 12% in 90 days).

Since the stock has added ₹72b 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 Godrej Consumer Products

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Godrej Consumer Products' earnings per share are down 12% per year, despite strong share price performance over five years. This was, in part, due to extraordinary items impacting earning in the last twelve months.

This means it's unlikely the market is judging the company based on earnings growth. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.

The modest 0.7% dividend yield is unlikely to be propping up the share price. On the other hand, Godrej Consumer Products' revenue is growing nicely, at a compound rate of 8.0% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Godrej Consumer Products is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So we recommend checking out this free report showing consensus forecasts

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Godrej Consumer Products' TSR for the last 5 years was 135%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Godrej Consumer Products provided a TSR of 38% over the last twelve months. But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 19% over half a decade It is possible that returns will improve along with the business fundamentals. 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. For instance, we've identified 1 warning sign for Godrej Consumer Products that you should be aware of.

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.

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