For many, the main point of investing in the stock market is to achieve spectacular returns. And we’ve seen some truly amazing gains over the years. For example, the Bharat Rasayan Limited (NSE:BHARATRAS) share price is up a whopping 771% in the last half decade, a handsome return for long term holders. And this is just one example of the epic gains achieved by some long term investors. It’s also good to see the share price up 37% over the last quarter.
It really delights us to see such great share price performance for investors.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).
Over half a decade, Bharat Rasayan managed to grow its earnings per share at 36% a year. This EPS growth is lower than the 54% average annual increase in the share price. 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.
The graphic below depicts how EPS has changed over time.
Dive deeper into Bharat Rasayan’s key metrics by checking this interactive graph of Bharat Rasayan’s earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. In the case of Bharat Rasayan, it has a TSR of 774% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market gained around 2.6% in the last year, Bharat Rasayan shareholders lost 3.8% (even including dividends) . Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 54% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Before forming an opinion on Bharat Rasayan you might want to consider these 3 valuation metrics.
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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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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.