Gujarat Narmada Valley Fertilizers & Chemicals' (NSE:GNFC) earnings growth rate lags the 42% CAGR delivered to shareholders

Gujarat Narmada Valley Fertilizers & Chemicals Limited (NSE:GNFC) shareholders might be concerned after seeing the share price drop 14% in the last month. But in three years the returns have been great. In three years the stock price has launched 160% higher: a great result. It's not uncommon to see a share price retrace a bit, after a big gain. The thing to consider is whether the underlying business is doing well enough to support the current price.

Since the long term performance has been good but there's been a recent pullback of 9.0%, let's check if the fundamentals match the share price.

View our latest analysis for Gujarat Narmada Valley Fertilizers & Chemicals

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).

During three years of share price growth, Gujarat Narmada Valley Fertilizers & Chemicals achieved compound earnings per share growth of 22% per year. This EPS growth is lower than the 37% average annual increase in the share price. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. That's not necessarily surprising considering the three-year track record of earnings growth.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It might be well worthwhile taking a look at our free report on Gujarat Narmada Valley Fertilizers & Chemicals' earnings, revenue and cash flow.

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. As it happens, Gujarat Narmada Valley Fertilizers & Chemicals' TSR for the last 3 years was 184%, 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 Gujarat Narmada Valley Fertilizers & Chemicals has rewarded shareholders with a total shareholder return of 108% in the last twelve months. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 23% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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 Gujarat Narmada Valley Fertilizers & Chemicals , 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 IN 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.