A Look At Taro Pharmaceutical Industries' (NYSE:TARO) Share Price Returns

Taro Pharmaceutical Industries Ltd. (NYSE:TARO) shareholders should be happy to see the share price up 24% in the last quarter. But if you look at the last five years the returns have not been good. In fact, the share price is down 48%, which falls well short of the return you could get by buying an index fund.

View our latest analysis for Taro Pharmaceutical Industries

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

In the last half decade Taro Pharmaceutical Industries saw its share price fall as its EPS declined below zero. The recent extraordinary items contributed to this situation. At present it's hard to make valid comparisons between EPS and the share price. But we would generally expect a lower price, given the situation.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

This free interactive report on Taro Pharmaceutical Industries' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Taro Pharmaceutical Industries' total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Taro Pharmaceutical Industries hasn't been paying dividends, but its TSR of -40% exceeds its share price return of -48%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

Taro Pharmaceutical Industries shareholders are down 7.1% for the year, but the market itself is up 29%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. However, the loss over the last year isn't as bad as the 7% per annum loss investors have suffered over the last half decade. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. 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 Taro Pharmaceutical Industries .

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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

When trading Taro Pharmaceutical Industries or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.