Those who invested in Torrent Pharmaceuticals (NSE:TORNTPHARM) five years ago are up 169%

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But on a lighter note, a good company can see its share price rise well over 100%. For example, the Torrent Pharmaceuticals Limited (NSE:TORNTPHARM) share price has soared 153% in the last half decade. Most would be very happy with that. Also pleasing for shareholders was the 10% gain in the last three months.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

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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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, Torrent Pharmaceuticals achieved compound earnings per share (EPS) growth of 12% per year. This EPS growth is lower than the 20% average annual increase in the share price. 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 60.74.

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

We know that Torrent Pharmaceuticals has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Torrent Pharmaceuticals' balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Torrent Pharmaceuticals' TSR for the last 5 years was 169%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that Torrent Pharmaceuticals shareholders have received a total shareholder return of 5.6% over one year. Of course, that includes the dividend. Having said that, the five-year TSR of 22% a year, is even better. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. It's always interesting to track share price performance over the longer term. But to understand Torrent Pharmaceuticals better, we need to consider many other factors. Take risks, for example - Torrent Pharmaceuticals has 1 warning sign we think you should be aware of.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.