The 13% return this week takes Puravankara's (NSE:PURVA) shareholders five-year gains to 645%

Puravankara Limited (NSE:PURVA) shareholders might be concerned after seeing the share price drop 20% in the last quarter. But that doesn't change the fact that the returns over the last half decade have been spectacular. In fact, during that period, the share price climbed 594%. Impressive! So it might be that some shareholders are taking profits after good performance. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 29% drop, in the last year. It really delights us to see such great share price performance for investors.

Since the stock has added ₹7.2b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Our free stock report includes 2 warning signs investors should be aware of before investing in Puravankara. Read for free now.

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Puravankara's earnings per share are down 19% per year, despite strong share price performance over five years.

Essentially, it doesn't seem likely that investors are focused on EPS. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.

On the other hand, Puravankara's revenue is growing nicely, at a compound rate of 9.3% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

This free interactive report on Puravankara's 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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Puravankara's TSR for the last 5 years was 645%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Investors in Puravankara had a tough year, with a total loss of 29% (including dividends), against a market gain of about 5.1%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 49%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 2 warning signs for Puravankara that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.