It might be of some concern to shareholders to see the Grasim Industries Limited (NSE:GRASIM) share price down 16% in the last month. But don't let that distract from the very nice return generated over three years. To wit, the share price did better than an index fund, climbing 78% during that period.
Although Grasim Industries has shed ₹59b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.
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.
Grasim Industries was able to grow its EPS at 68% per year over three years, sending the share price higher. The average annual share price increase of 21% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Grasim Industries has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Grasim Industries' balance sheet strength is a great place to start, if you want to investigate the stock further.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Grasim Industries, it has a TSR of 82% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
Grasim Industries shareholders gained a total return of 8.6% during the year. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 6% per year over five year. This suggests the company might be improving over time. 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 Grasim Industries (at least 1 which can't be ignored) , and understanding them should be part of your investment process.
But note: Grasim Industries 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.
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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.