Tata Elxsi's (NSE:TATAELXSI) earnings growth rate lags the 57% CAGR delivered to shareholders

For many, the main point of investing in the stock market is to achieve spectacular returns. While the best companies are hard to find, but they can generate massive returns over long periods. For example, the Tata Elxsi Limited (NSE:TATAELXSI) share price is up a whopping 810% in the last half decade, a handsome return for long term holders. And this is just one example of the epic gains achieved by some long term investors. Unfortunately, though, the stock has dropped 4.9% over a week. But this could be related to the soft market, with stocks selling off around 0.3% in the last week. We love happy stories like this one. The company should be really proud of that performance!

Since the long term performance has been good but there's been a recent pullback of 4.9%, let's check if the fundamentals match the share price.

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...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Over half a decade, Tata Elxsi managed to grow its earnings per share at 22% 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 favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 65.86.

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

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

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. In the case of Tata Elxsi, it has a TSR of 865% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Tata Elxsi's TSR for the year was broadly in line with the market average, at 31%. It has to be noted that the recent return falls short of the 57% shareholders have gained each year, over half a decade. Although the share price growth has slowed, the longer term story points to a business well worth watching. 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 instance, we've identified 1 warning sign for Tata Elxsi that you should be aware of.

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.

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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.