Investors Who Bought Akzo Nobel India (NSE:AKZOINDIA) Shares Five Years Ago Are Now Up 60%

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 Akzo Nobel India Limited (NSE:AKZOINDIA) share price is up 60% in the last 5 years, clearly besting the market return of around 49% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 16% , including dividends .

See our latest analysis for Akzo Nobel India

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.

Akzo Nobel India's earnings per share are down 0.02% per year, despite strong share price performance over five years.

So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We doubt the modest 0.6% dividend yield is attracting many buyers to the stock. The revenue reduction of 1.2% per year is not a positive. It certainly surprises us that the share price is up, but perhaps a closer examination of the data will yield answers.

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

If you are thinking of buying or selling Akzo Nobel India stock, you should check out this FREE detailed report on its balance sheet.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Akzo Nobel India's TSR for the last 5 years was 75%, 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

Akzo Nobel India's TSR for the year was broadly in line with the market average, at 16%. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 12%. It is possible that management foresight will bring growth well into the future, even if the share price slows down. It's always interesting to track share price performance over the longer term. But to understand Akzo Nobel India better, we need to consider many other factors. Even so, be aware that Akzo Nobel India is showing 1 warning sign in our investment analysis , you should know about...

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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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