While Honeywell Automation India Limited (NSE:HONAUT) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 13% in the last quarter. But in stark contrast, the returns over the last half decade have impressed. In fact, the share price is 244% higher today. We think it's more important to dwell on the long term returns than the short term returns. Only time will tell if there is still too much optimism currently reflected in the share price.
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 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.
Over half a decade, Honeywell Automation India managed to grow its earnings per share at 34% a year. So the EPS growth rate is rather close to the annualized share price gain of 28% per year. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. Rather, the share price has approximately tracked EPS growth.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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, Honeywell Automation India's TSR for the last 5 years was 247%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Honeywell Automation India provided a TSR of 10% over the year (including dividends). That's fairly close to the broader market return. It has to be noted that the recent return falls short of the 28% 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. Is Honeywell Automation India cheap compared to other companies? These 3 valuation measures might help you decide.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.
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This article by Simply Wall St is general in nature. 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.
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