Despite the downward trend in earnings at Manali Petrochemicals (NSE:MANALIPETC) the stock pops 11%, bringing five-year gains to 179%

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 Manali Petrochemicals Limited (NSE:MANALIPETC) stock is up an impressive 163% over the last five years. Also pleasing for shareholders was the 22% gain in the last three months. This could be related to the recent financial results, released recently - you can catch up on the most recent data by reading our company report.

Since the stock has added ₹1.2b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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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 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, Manali Petrochemicals actually saw its EPS drop 3.2% per year.

So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.

We doubt the modest 0.7% dividend yield is attracting many buyers to the stock. It is not great to see that revenue has dropped by 2.6% per year over five years. So it seems one might have to take closer look at earnings and revenue trends to see how they might influence the share price.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

If you are thinking of buying or selling Manali Petrochemicals stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Manali Petrochemicals' TSR for the last 5 years was 179%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We regret to report that Manali Petrochemicals shareholders are down 19% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 5.1%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 23% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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 Manali Petrochemicals (including 1 which can't be ignored) .

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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.