On average, over time, stock markets tend to rise higher. This makes investing attractive. But not every stock you buy will perform as well as the overall market. Unfortunately for shareholders, while the Gujarat Industries Power Company Limited (NSE:GIPCL) share price is up 46% in the last year, that falls short of the market return. In contrast, the longer term returns are negative, since the share price is 13% lower than it was three years ago.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the last year, Gujarat Industries Power actually saw its earnings per share drop 26%.
This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
Gujarat Industries Power's revenue actually dropped 3.2% over last year. So the fundamental metrics don't provide an obvious explanation for the share price gain.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. It might be well worthwhile taking a look at our free report on Gujarat Industries Power's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. In the case of Gujarat Industries Power, it has a TSR of 51% for the last year. 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
Gujarat Industries Power shareholders gained a total return of 51% during the year. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 2% per year over five year. It is possible that returns will improve along with the business fundamentals. Before forming an opinion on Gujarat Industries Power you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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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