Gujarat State Fertilizers & Chemicals (NSE:GSFC) stock performs better than its underlying earnings growth over last five years

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, you can make far more than 100% on a really good stock. For instance, the price of Gujarat State Fertilizers & Chemicals Limited (NSE:GSFC) stock is up an impressive 156% over the last five years. On top of that, the share price is up 21% in about a quarter. But this move may well have been assisted by the reasonably buoyant market (up 16% in 90 days).

Since it's been a strong week for Gujarat State Fertilizers & Chemicals shareholders, let's have a look at trend of the longer term fundamentals.

Check out our latest analysis for Gujarat State Fertilizers & Chemicals

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 five years of share price growth, Gujarat State Fertilizers & Chemicals achieved compound earnings per share (EPS) growth of 2.7% per year. This EPS growth is lower than the 21% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-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).

Dive deeper into Gujarat State Fertilizers & Chemicals' key metrics by checking this interactive graph of Gujarat State Fertilizers & Chemicals's earnings, revenue and cash flow.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Gujarat State Fertilizers & Chemicals, it has a TSR of 194% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Gujarat State Fertilizers & Chemicals provided a TSR of 52% over the year (including dividends). That's fairly close to the broader market return. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 24%. Even if the share price growth slows down from here, there's a good chance that this is business worth watching in the long term. 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. Even so, be aware that Gujarat State Fertilizers & Chemicals is showing 2 warning signs in our investment analysis , you should know about...

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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