20 Microns' (NSE:20MICRONS) five-year earnings growth trails the 49% YoY shareholder returns

We think all investors should try to buy and hold high quality multi-year winners. And we've seen some truly amazing gains over the years. Don't believe it? Then look at the 20 Microns Limited (NSE:20MICRONS) share price. It's 634% higher than it was five years ago. If that doesn't get you thinking about long term investing, we don't know what will. It's even up 15% in the last week. It really delights us to see such great share price performance for investors.

Since the stock has added ₹990m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Our free stock report includes 2 warning signs investors should be aware of before investing in 20 Microns. Read for free now.

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

During five years of share price growth, 20 Microns achieved compound earnings per share (EPS) growth of 18% per year. This EPS growth is slower than the share price growth of 49% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.

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

Dive deeper into 20 Microns' key metrics by checking this interactive graph of 20 Microns's earnings, revenue and cash flow.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of 20 Microns, it has a TSR of 643% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that 20 Microns has rewarded shareholders with a total shareholder return of 45% in the last twelve months. Of course, that includes the dividend. However, the TSR over five years, coming in at 49% per year, is even more impressive. 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. To that end, you should be aware of the 2 warning signs we've spotted with 20 Microns .

Of course 20 Microns may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.