Monte Carlo Fashions' (NSE:MONTECARLO) 33% CAGR outpaced the company's earnings growth over the same five-year period

When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But on the bright side, you can make far more than 100% on a really good stock. Long term Monte Carlo Fashions Limited (NSE:MONTECARLO) shareholders would be well aware of this, since the stock is up 263% in five years. Also pleasing for shareholders was the 34% gain in the last three months.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

Check out our latest analysis for Monte Carlo Fashions

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.

During five years of share price growth, Monte Carlo Fashions achieved compound earnings per share (EPS) growth of 1.0% per year. This EPS growth is lower than the 29% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth.

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

Dive deeper into Monte Carlo Fashions' key metrics by checking this interactive graph of Monte Carlo Fashions'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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Monte Carlo Fashions' TSR for the last 5 years was 320%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Monte Carlo Fashions provided a TSR of 12% over the last twelve months. Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 33% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. 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. Even so, be aware that Monte Carlo Fashions is showing 2 warning signs in our investment analysis , you should know about...

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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.