Everest Kanto Cylinder's (NSE:EKC) five-year total shareholder returns outpace the underlying earnings growth

Everest Kanto Cylinder Limited (NSE:EKC) shareholders have seen the share price descend 22% over the month. But that does not change the realty that the stock's performance has been terrific, over five years. In that time, the share price has soared some 497% higher! Arguably, the recent fall is to be expected after such a strong rise. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain. Unfortunately not all shareholders will have held it for five years, so spare a thought for those caught in the 38% decline over the last three years: that's a long time to wait for profits.

Although Everest Kanto Cylinder has shed ₹2.4b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

Check out our latest analysis for Everest Kanto Cylinder

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 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, Everest Kanto Cylinder managed to grow its earnings per share at 13% a year. This EPS growth is lower than the 43% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that Everest Kanto Cylinder has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

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, Everest Kanto Cylinder's TSR for the last 5 years was 508%, 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

Everest Kanto Cylinder shareholders have received returns of 9.9% over twelve months (even including dividends), which isn't far from the general market return. It has to be noted that the recent return falls short of the 43% shareholders have gained each year, over half a decade. More recently, the share price growth has slowed. But it has to be said the overall picture is one of good long term and short term performance. Arguably that makes Everest Kanto Cylinder a stock worth watching. It's always interesting to track share price performance over the longer term. But to understand Everest Kanto Cylinder better, we need to consider many other factors. Take risks, for example - Everest Kanto Cylinder has 2 warning signs we think you should be aware of.

We will like Everest Kanto Cylinder better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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.