Solar Industries India (NSE:SOLARINDS) sheds 9.2% this week, as yearly returns fall more in line with earnings growth

Long term investing can be life changing when you buy and hold the truly great businesses. And highest quality companies can see their share prices grow by huge amounts. For example, the Solar Industries India Limited (NSE:SOLARINDS) share price is up a whopping 842% in the last half decade, a handsome return for long term holders. This just goes to show the value creation that some businesses can achieve. Also pleasing for shareholders was the 26% gain in the last three months. But this move may well have been assisted by the reasonably buoyant market (up 11% in 90 days). We love happy stories like this one. The company should be really proud of that performance!

Although Solar Industries India has shed ₹100b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

Check out our latest analysis for Solar Industries India

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, Solar Industries India achieved compound earnings per share (EPS) growth of 26% per year. This EPS growth is slower than the share price growth of 57% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth. This optimism is visible in its fairly high P/E ratio of 118.12.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It is of course excellent to see how Solar Industries India has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Solar Industries India's financial health with this free report on its balance sheet.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Solar Industries India the TSR over the last 5 years was 856%, 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

We're pleased to report that Solar Industries India shareholders have received a total shareholder return of 190% over one year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 57%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.

But note: Solar Industries India 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com