Hindustan Unilever (NSE:HINDUNILVR) shareholders have earned a 9.9% CAGR over the last five years

If you buy and hold a stock for many years, you'd hope to be making a profit. Furthermore, you'd generally like to see the share price rise faster than the market. But Hindustan Unilever Limited (NSE:HINDUNILVR) has fallen short of that second goal, with a share price rise of 48% over five years, which is below the market return. Looking at the last year alone, the stock is up 18%.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

View our latest analysis for Hindustan Unilever

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, Hindustan Unilever managed to grow its earnings per share at 8.7% a year. This EPS growth is reasonably close to the 8% average annual increase in the share price. This indicates that investor sentiment towards the company has not changed a great deal. Rather, the share price has approximately tracked EPS growth.

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

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

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Hindustan Unilever the TSR over the last 5 years was 60%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Hindustan Unilever shareholders gained a total return of 20% during the year. Unfortunately this falls short of the market return. The silver lining is that the gain was actually better than the average annual return of 10% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Hindustan Unilever , and understanding them should be part of your investment process.

We will like Hindustan Unilever 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.