Newgen Software Technologies (NSE:NEWGEN) stock performs better than its underlying earnings growth over last three years

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 bright shining star stock has been Newgen Software Technologies Limited (NSE:NEWGEN), which is 385% higher than three years ago. On top of that, the share price is up 36% in about a quarter.

The past week has proven to be lucrative for Newgen Software Technologies investors, so let's see if fundamentals drove the company's three-year performance.

See our latest analysis for Newgen Software Technologies

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 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.

Newgen Software Technologies was able to grow its EPS at 25% per year over three years, sending the share price higher. This EPS growth is lower than the 69% 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 three years ago. That's not necessarily surprising considering the three-year track record of earnings growth.

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

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

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. We note that for Newgen Software Technologies the TSR over the last 3 years was 397%, 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 Newgen Software Technologies shareholders have received a total shareholder return of 291% over the last year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 34%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Newgen Software Technologies better, we need to consider many other factors. Even so, be aware that Newgen Software Technologies is showing 2 warning signs in our investment analysis , you should know about...

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.