The five-year decline in earnings might be taking its toll on Rashtriya Chemicals and Fertilizers (NSE:RCF) shareholders as stock falls 8.2% over the past week

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But when you pick a company that is really flourishing, you can make more than 100%. Long term Rashtriya Chemicals and Fertilizers Limited (NSE:RCF) shareholders would be well aware of this, since the stock is up 192% in five years. It's down 8.2% in the last seven days.

Although Rashtriya Chemicals and Fertilizers has shed ₹6.9b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

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While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Rashtriya Chemicals and Fertilizers' earnings per share are down 1.8% per year, despite strong share price performance over five years.

By glancing at these numbers, we'd posit that the decline in earnings per share is not representative of how the business has changed over the years. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.

The modest 0.9% dividend yield is unlikely to be propping up the share price. On the other hand, Rashtriya Chemicals and Fertilizers' revenue is growing nicely, at a compound rate of 13% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.

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

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. It might be well worthwhile taking a look at our free report on Rashtriya Chemicals and Fertilizers' earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Rashtriya Chemicals and Fertilizers' TSR for the last 5 years was 252%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Investors in Rashtriya Chemicals and Fertilizers had a tough year, with a total loss of 13% (including dividends), against a market gain of about 4.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 29% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Rashtriya Chemicals and Fertilizers better, we need to consider many other factors. Take risks, for example - Rashtriya Chemicals and Fertilizers has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

But note: Rashtriya Chemicals and Fertilizers 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.