The total return for Gujarat State Fertilizers & Chemicals (NSE:GSFC) investors has risen faster than earnings growth over the 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 a lighter note, a good company can see its share price rise well over 100%. For instance, the price of Gujarat State Fertilizers & Chemicals Limited (NSE:GSFC) stock is up an impressive 206% over the last five years. On the other hand, the stock price has retraced 6.5% in the last week. But this could be related to the soft market, with stocks selling off around 3.4% in the last week.

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.

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In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During five years of share price growth, Gujarat State Fertilizers & Chemicals achieved compound earnings per share (EPS) growth of 46% per year. The EPS growth is more impressive than the yearly share price gain of 25% over the same period. So one could conclude that the broader market has become more cautious towards the stock.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

This free interactive report on Gujarat State Fertilizers & Chemicals' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Gujarat State Fertilizers & Chemicals the TSR over the last 5 years was 249%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

The total return of 7.6% received by Gujarat State Fertilizers & Chemicals shareholders over the last year isn't far from the market return of -7.9%. Longer term investors wouldn't be so upset, since they would have made 28%, each year, over five years. If the stock price has been impacted by changing sentiment, rather than deteriorating business conditions, it could spell opportunity. 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. Take risks, for example - Gujarat State Fertilizers & Chemicals has 1 warning sign we think you should be aware of.

Of course Gujarat State Fertilizers & Chemicals may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.