Tata Elxsi (NSE:TATAELXSI) shareholders have earned a 57% CAGR over the last five years

For many, the main point of investing in the stock market is to achieve spectacular returns. And we've seen some truly amazing gains over the years. Don't believe it? Then look at the Tata Elxsi Limited (NSE:TATAELXSI) share price. It's 813% higher than it was five years ago. If that doesn't get you thinking about long term investing, we don't know what will. In the last week the share price is up 1.8%. We love happy stories like this one. The company should be really proud of that performance!

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.

Check out our latest analysis for Tata Elxsi

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, Tata Elxsi managed to grow its earnings per share at 28% a year. This EPS growth is lower than the 56% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth. This optimism is visible in its fairly high P/E ratio of 55.13.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

This free interactive report on Tata Elxsi's earnings, revenue and cash flow 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). 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. As it happens, Tata Elxsi's TSR for the last 5 years was 863%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

While the broader market gained around 37% in the last year, Tata Elxsi shareholders lost 11% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 57% 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. 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. To that end, you should be aware of the 1 warning sign we've spotted with Tata Elxsi .

But note: Tata Elxsi 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 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.