Torpol's (WSE:TOR) five-year earnings growth trails the fantastic shareholder returns

We think all investors should try to buy and hold high quality multi-year winners. While the best companies are hard to find, but they can generate massive returns over long periods. To wit, the Torpol S.A. (WSE:TOR) share price has soared 442% over five years. And this is just one example of the epic gains achieved by some long term investors. Also pleasing for shareholders was the 40% gain in the last three months.

Since the stock has added zł122m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for Torpol

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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, Torpol managed to grow its earnings per share at 24% a year. This EPS growth is slower than the share price growth of 40% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.

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

It is of course excellent to see how Torpol has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Torpol's financial health with this free report on its balance sheet.

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Torpol's TSR for the last 5 years was 690%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that Torpol has rewarded shareholders with a total shareholder return of 53% in the last twelve months. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 51% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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 example, we've discovered 2 warning signs for Torpol (1 can't be ignored!) that you should be aware of before investing here.

Of course Torpol may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Polish 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.