The main point of investing for the long term is to make money. Better yet, you'd like to see the share price move up more than the market average. But Greaves Cotton Limited (NSE:GREAVESCOT) has fallen short of that second goal, with a share price rise of 46% over five years, which is below the market return. On a brighter note, more newer shareholders are probably rather content with the 39% share price gain over twelve months.
The past week has proven to be lucrative for Greaves Cotton investors, so let's see if fundamentals drove the company's five-year performance.
Check out our latest analysis for Greaves Cotton
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
During five years of share price growth, Greaves Cotton moved from a loss to profitability. However, it made a loss in the last twelve months, suggesting profit may be an unreliable metric at this stage. So it might be better to look at other metrics to try to understand the share price.
The modest 1.1% dividend yield is unlikely to be propping up the share price. In contrast revenue growth of 11% per year is probably viewed as evidence that Greaves Cotton is growing, a real positive. In that case, the company may be sacrificing current earnings per share to drive growth.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Take a more thorough look at Greaves Cotton's financial health with this free report on its balance sheet.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Greaves Cotton, it has a TSR of 49% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
Greaves Cotton shareholders have received returns of 40% over twelve months (even including dividends), which isn't far from the general market return. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 8%. It is possible that management foresight will bring growth well into the future, even if the share price slows down. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 2 warning signs we've spotted with Greaves Cotton .
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 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.