Emami Paper Mills (NSE:EMAMIPAP) jumps 11% this week, though earnings growth is still tracking behind five-year shareholder returns

If you buy and hold a stock for many years, you'd hope to be making a profit. Furthermore, you'd generally like to see the share price rise faster than the market. But Emami Paper Mills Limited (NSE:EMAMIPAP) has fallen short of that second goal, with a share price rise of 63% over five years, which is below the market return. Zooming in, the stock is up a respectable 12% in the last year.

On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.

View our latest analysis for Emami Paper Mills

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, Emami Paper Mills achieved compound earnings per share (EPS) growth of 14% per year. The EPS growth is more impressive than the yearly share price gain of 10% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. The reasonably low P/E ratio of 9.59 also suggests market apprehension.

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

This free interactive report on Emami Paper Mills' earnings, revenue and cash flow 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Emami Paper Mills' TSR for the last 5 years was 69%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Emami Paper Mills shareholders gained a total return of 13% during the year. But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 11% over half a decade It is possible that returns will improve along with the business fundamentals. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Emami Paper Mills (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com