Despite lower earnings than five years ago, Gujarat Narmada Valley Fertilizers & Chemicals (NSE:GNFC) investors are up 265% since then

When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. For instance, the price of Gujarat Narmada Valley Fertilizers & Chemicals Limited (NSE:GNFC) stock is up an impressive 215% over the last five years. On the other hand, we note it's down 9.1% in about a month. We note that the broader market is down 2.0% in the last month, and this may have impacted Gujarat Narmada Valley Fertilizers & Chemicals' share price.

While this past week has detracted from the company's five-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

View our latest analysis for Gujarat Narmada Valley Fertilizers & Chemicals

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).

Gujarat Narmada Valley Fertilizers & Chemicals' earnings per share are down 6.9% per year, despite strong share price performance over five years.

Essentially, it doesn't seem likely that investors are focused on EPS. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.

In contrast revenue growth of 15% per year is probably viewed as evidence that Gujarat Narmada Valley Fertilizers & Chemicals is growing, a real positive. In that case, the company may be sacrificing current earnings per share to drive growth.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

If you are thinking of buying or selling Gujarat Narmada Valley Fertilizers & Chemicals stock, you should check out this FREE detailed report on its balance sheet.

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 and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Gujarat Narmada Valley Fertilizers & Chemicals' TSR for the last 5 years was 265%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Gujarat Narmada Valley Fertilizers & Chemicals shareholders are up 22% for the year (even including dividends). But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 30% per year for five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. 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. Even so, be aware that Gujarat Narmada Valley Fertilizers & Chemicals is showing 2 warning signs in our investment analysis , you should know about...

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are 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.

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