The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But if you buy shares in a really great company, you can more than double your money. For instance the E.I.D.- Parry (India) Limited (NSE:EIDPARRY) share price is 280% higher than it was three years ago. That sort of return is as solid as granite. It's also good to see the share price up 12% over the last quarter. But this could be related to the strong market, which is up 9.1% in the last three months.
Since the stock has added ₹5.1b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
However if you'd rather see where the opportunities and risks are within EIDPARRY's industry, you can check out our analysis on the IN Chemicals industry.
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. 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 three years of share price growth, E.I.D.- Parry (India) achieved compound earnings per share growth of 48% per year. We don't think it is entirely coincidental that the EPS growth is reasonably close to the 56% average annual increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Quite to the contrary, the share price has arguably reflected the EPS growth.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how E.I.D.- Parry (India) has grown profits over the years, but the future is more important for shareholders. This free interactive report on E.I.D.- Parry (India)'s balance sheet strength is a great place to start, if you want to investigate the stock further.
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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, E.I.D.- Parry (India)'s TSR for the last 3 years was 290%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's good to see that E.I.D.- Parry (India) has rewarded shareholders with a total shareholder return of 39% in the last twelve months. That's including the dividend. That gain is better than the annual TSR over five years, which is 12%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand E.I.D.- Parry (India) better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for E.I.D.- Parry (India) you should be aware of.
But note: E.I.D.- Parry (India) may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.
Valuation is complex, but we're helping make it simple.
Find out whether E.I.D.- Parry (India) is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.