Sree Rayalaseema Hi-Strength Hypo's (NSE:SRHHYPOLTD) earnings growth rate lags the 49% CAGR delivered to shareholders

The Sree Rayalaseema Hi-Strength Hypo Limited (NSE:SRHHYPOLTD) share price has had a bad week, falling 15%. But that doesn't undermine the fantastic longer term performance (measured over five years). In that time, the share price has soared some 614% higher! So we don't think the recent decline in the share price means its story is a sad one. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain. It really delights us to see such great share price performance for investors.

In light of the stock dropping 15% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.

View our latest analysis for Sree Rayalaseema Hi-Strength Hypo

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 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, Sree Rayalaseema Hi-Strength Hypo achieved compound earnings per share (EPS) growth of 27% per year. This EPS growth is lower than the 48% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

This free interactive report on Sree Rayalaseema Hi-Strength Hypo's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Sree Rayalaseema Hi-Strength Hypo, it has a TSR of 641% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Sree Rayalaseema Hi-Strength Hypo shareholders gained a total return of 29% during the year. But that return falls short of the market. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 49% over five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. It's always interesting to track share price performance over the longer term. But to understand Sree Rayalaseema Hi-Strength Hypo better, we need to consider many other factors. Even so, be aware that Sree Rayalaseema Hi-Strength Hypo is showing 2 warning signs in our investment analysis , you should know about...

But note: Sree Rayalaseema Hi-Strength Hypo 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.