Intellect Design Arena's (NSE:INTELLECT) earnings growth rate lags the 37% CAGR delivered to shareholders

While Intellect Design Arena Limited (NSE:INTELLECT) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 22% in the last quarter. But that does not change the realty that the stock's performance has been terrific, over five years. In fact, during that period, the share price climbed 366%. Impressive! So we don't think the recent decline in the share price means its story is a sad one. Of course what matters most is whether the business can improve itself sustainably, thus justifying a higher price.

In light of the stock dropping 7.2% 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.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

Over half a decade, Intellect Design Arena managed to grow its earnings per share at 44% a year. The EPS growth is more impressive than the yearly share price gain of 36% over the same period. Therefore, it seems the market has become relatively pessimistic about the company.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that Intellect Design Arena has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Intellect Design Arena will grow revenue in the future.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Intellect Design Arena the TSR over the last 5 years was 374%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

We regret to report that Intellect Design Arena shareholders are down 8.5% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 4.4%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 37% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Before deciding if you like the current share price, check how Intellect Design Arena scores on these 3 valuation metrics.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Indian exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.