Those who invested in JSW Steel (NSE:JSWSTEEL) five years ago are up 251%

JSW Steel Limited (NSE:JSWSTEEL) shareholders might be concerned after seeing the share price drop 11% in the last quarter. But that doesn't change the fact that the returns over the last five years have been very strong. In fact, the share price is 229% higher today. Generally speaking the long term returns will give you a better idea of business quality than short periods can. Ultimately business performance will determine whether the stock price continues the positive long term trend.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

View our latest analysis for JSW Steel

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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, JSW Steel actually saw its EPS drop 6.1% per year.

This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

The modest 0.8% dividend yield is unlikely to be propping up the share price. In contrast revenue growth of 21% per year is probably viewed as evidence that JSW Steel is growing, a real positive. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

JSW Steel is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for JSW Steel in this interactive graph of future profit estimates.

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 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. As it happens, JSW Steel's TSR for the last 5 years was 251%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

JSW Steel provided a TSR of 9.9% over the last twelve months. Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 29% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. It's always interesting to track share price performance over the longer term. But to understand JSW Steel better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for JSW Steel (of which 1 makes us a bit uncomfortable!) you should know about.

But note: JSW Steel 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 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.