We think all investors should try to buy and hold high quality multi-year winners. While the best companies are hard to find, but they can generate massive returns over long periods. For example, the Vinati Organics Limited (NSE:VINATIORGA) share price is up a whopping 336% in the last half decade, a handsome return for long term holders. If that doesn't get you thinking about long term investing, we don't know what will. But it's down 7.1% in the last week. But note that the broader market is down 5.3% since last week, and this may have impacted Vinati Organics' share price.
Since the long term performance has been good but there's been a recent pullback of 7.1%, let's check if the fundamentals match the share price.
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. 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.
Over half a decade, Vinati Organics managed to grow its earnings per share at 18% a year. This EPS growth is slower than the share price growth of 34% per year, over the same period. 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. This optimism is visible in its fairly high P/E ratio of 63.09.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
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. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Vinati Organics, it has a TSR of 344% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Vinati Organics provided a TSR of 11% over the last twelve months. 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 35% over five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. Is Vinati Organics cheap compared to other companies? These 3 valuation measures might help you decide.
We will like Vinati Organics better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.
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.