Is Grasim Industries' (NSE:GRASIM) 167% Share Price Increase Well Justified?

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But if you pick the right stock, you can make a lot more than 100%. For example, the Grasim Industries Limited (NSE:GRASIM) share price has soared 167% return in just a single year. Also pleasing for shareholders was the 55% gain in the last three months. Also impressive, the stock is up 30% over three years, making long term shareholders happy, too.

Check out our latest analysis for Grasim Industries

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 the last year, Grasim Industries actually saw its earnings per share drop 6.8%.

This means it's unlikely the market is judging the company based on earnings growth. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.

We are skeptical of the suggestion that the 0.3% dividend yield would entice buyers to the stock. Grasim Industries' revenue actually dropped 4.6% over last year. So the fundamental metrics don't provide an obvious explanation for the share price gain.

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

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. You can see what analysts are predicting for Grasim Industries in this interactive graph of future profit estimates.

A Different Perspective

It's nice to see that Grasim Industries shareholders have received a total shareholder return of 168% over the last year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 14%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. To that end, you should learn about the 3 warning signs we've spotted with Grasim Industries (including 1 which is concerning) .

Grasim Industries is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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. 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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