Stock Analysis

National Aluminium (NSE:NATIONALUM) sheds 5.2% this week, as yearly returns fall more in line with earnings growth

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NSEI:NATIONALUM
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Low-cost index funds make it easy to achieve average market returns. But across the board there are plenty of stocks that underperform the market. Unfortunately for shareholders, while the National Aluminium Company Limited (NSE:NATIONALUM) share price is up 57% in the last three years, that falls short of the market return. Unfortunately, the share price has fallen 17% over twelve months.

While this past week has detracted from the company's three-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

Before we look at the performance, you might like to know that our analysis indicates that NATIONALUM is potentially undervalued!

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 three years of share price growth, National Aluminium achieved compound earnings per share growth of 42% per year. The average annual share price increase of 16% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat. We'd venture the lowish P/E ratio of 4.25 also reflects the negative sentiment around the stock.

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

earnings-per-share-growth
NSEI:NATIONALUM Earnings Per Share Growth September 25th 2022

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on National Aluminium's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for National Aluminium the TSR over the last 3 years was 85%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

National Aluminium shareholders are down 12% for the year (even including dividends), but the market itself is up 2.2%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 6% 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. It's always interesting to track share price performance over the longer term. But to understand National Aluminium better, we need to consider many other factors. Even so, be aware that National Aluminium is showing 1 warning sign 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 IN exchanges.

Valuation is complex, but we're helping make it simple.

Find out whether National Aluminium is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About NSEI:NATIONALUM

National Aluminium

National Aluminium Company Limited manufactures and sells alumina and aluminum products in India and internationally.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation2
Future Growth0
Past Performance2
Financial Health5
Dividends4

Read more about these checks in the individual report sections or in our analysis model.

Excellent balance sheet average dividend payer.