Did The Underlying Business Drive Chambal Fertilisers and Chemicals’s Lovely 304% Share Price Gain?

Long term investing can be life changing when you buy and hold the truly great businesses. And highest quality companies can see their share prices grow by huge amounts. For example, the Chambal Fertilisers and Chemicals Limited (NSE:CHAMBLFERT) share price is up a whopping 304% in the last half decade, a handsome return for long term holders. If that doesn’t get you thinking about long term investing, we don’t know what will.

Check out our latest analysis for Chambal Fertilisers and Chemicals

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

During five years of share price growth, Chambal Fertilisers and Chemicals achieved compound earnings per share (EPS) growth of 16% per year. This EPS growth is slower than the share price growth of 32% 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. That’s not necessarily surprising considering the five-year track record of earnings growth.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

NSEI:CHAMBLFERT Past and Future Earnings, February 27th 2019
NSEI:CHAMBLFERT Past and Future Earnings, February 27th 2019

We know that Chambal Fertilisers and Chemicals has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Chambal Fertilisers and Chemicals will revenue can grow in the future.

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 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Chambal Fertilisers and Chemicals the TSR over the last 5 years was 355%, which is better than the share price return mentioned above. And there’s no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While it’s certainly disappointing to see that Chambal Fertilisers and Chemicals shares lost 1.5% throughout the year, that wasn’t as bad as the market loss of 7.2%. Longer term investors wouldn’t be so upset, since they would have made 35%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.