20 Microns (NSE:20MICRONS) stock performs better than its underlying earnings growth over last five years

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. To wit, the 20 Microns Limited (NSE:20MICRONS) share price has soared 363% over five years. This just goes to show the value creation that some businesses can achieve. And in the last month, the share price has gained 20%.

Since the stock has added ₹632m 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 20 Microns

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, 20 Microns achieved compound earnings per share (EPS) growth of 16% per year. This EPS growth is lower than the 36% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings 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?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, 20 Microns' TSR for the last 5 years was 378%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that 20 Microns shareholders have received a total shareholder return of 108% over one year. That's including the dividend. That's better than the annualised return of 37% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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 risks, for instance. Every company has them, and we've spotted 2 warning signs for 20 Microns you should know about.

We will like 20 Microns better if we see some big insider buys. While we wait, check out this free list of growing companies 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.