J. B. Chemicals & Pharmaceuticals' (NSE:JBCHEPHARM) 81% CAGR outpaced the company's earnings growth over the same three-year period

By
Simply Wall St
Published
November 10, 2021
NSEI:JBCHEPHARM
Source: Shutterstock

Generally speaking, investors are inspired to be stock pickers by the potential to find the big winners. You won't get it right every time, but when you do, the returns can be truly splendid. One such superstar is J. B. Chemicals & Pharmaceuticals Limited (NSE:JBCHEPHARM), which saw its share price soar 463% in three years. Better yet, the share price has risen 6.1% in the last week.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

View our latest analysis for J. B. Chemicals & Pharmaceuticals

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, J. B. Chemicals & Pharmaceuticals achieved compound earnings per share growth of 52% per year. This EPS growth is lower than the 78% average annual increase in the share price. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. It's not unusual to see the market 're-rate' a stock, after a few years of growth.

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

earnings-per-share-growth
NSEI:JBCHEPHARM Earnings Per Share Growth November 11th 2021

We know that J. B. Chemicals & Pharmaceuticals has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling J. B. Chemicals & Pharmaceuticals stock, you should check out this FREE detailed 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. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for J. B. Chemicals & Pharmaceuticals the TSR over the last 3 years was 489%, 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

It's nice to see that J. B. Chemicals & Pharmaceuticals shareholders have received a total shareholder return of 85% over the last year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 40% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand J. B. Chemicals & Pharmaceuticals better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for J. B. Chemicals & Pharmaceuticals you should be aware of.

But note: J. B. Chemicals & Pharmaceuticals 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 IN exchanges.

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