Deepak Nitrite (NSE:DEEPAKNTR) sheds 6.0% this week, as yearly returns fall more in line with earnings growth

It hasn't been the best quarter for Deepak Nitrite Limited (NSE:DEEPAKNTR) shareholders, since the share price has fallen 15% in that time. But over five years returns have been remarkably great. To be precise, the stock price is 363% higher than it was five years ago, a wonderful performance by any measure. Arguably, the recent fall is to be expected after such a strong rise. Only time will tell if there is still too much optimism currently reflected in the share price.

Since the long term performance has been good but there's been a recent pullback of 6.0%, let's check if the fundamentals match the share price.

Check out our latest analysis for Deepak Nitrite

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

Over half a decade, Deepak Nitrite managed to grow its earnings per share at 16% a year. This EPS growth is slower than the share price growth of 36% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Deepak Nitrite, it has a TSR of 373% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

While the broader market gained around 3.6% in the last year, Deepak Nitrite shareholders lost 1.7% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 36% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Deepak Nitrite (at least 1 which is potentially serious) , and understanding them should be part of your investment process.

Deepak Nitrite is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been 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.