Garden Reach Shipbuilders & Engineers' (NSE:GRSE) 61% CAGR outpaced the company's earnings growth over the same five-year period

Simply Wall St · 10/16 00:05

Some Garden Reach Shipbuilders & Engineers Limited (NSE:GRSE) shareholders are probably rather concerned to see the share price fall 31% over the last three months. But that does not change the realty that the stock's performance has been terrific, over five years. In fact, during that period, the share price climbed 862%. Impressive! Arguably, the recent fall is to be expected after such a strong rise. Of course what matters most is whether the business can improve itself sustainably, thus justifying a higher price. We love happy stories like this one. The company should be really proud of that performance!

Since the stock has added ₹13b 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 Garden Reach Shipbuilders & Engineers

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.

During five years of share price growth, Garden Reach Shipbuilders & Engineers achieved compound earnings per share (EPS) growth of 24% per year. This EPS growth is lower than the 57% 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. And that's hardly shocking given the track record of growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 55.25.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

earnings-per-share-growth
NSEI:GRSE Earnings Per Share Growth October 16th 2024

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Dive deeper into the earnings by checking this interactive graph of Garden Reach Shipbuilders & Engineers' earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Garden Reach Shipbuilders & Engineers' TSR for the last 5 years was 994%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that Garden Reach Shipbuilders & Engineers shareholders have received a total shareholder return of 122% over one year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 61%. Therefore it seems like sentiment around the company has been positive lately. 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. Case in point: We've spotted 1 warning sign for Garden Reach Shipbuilders & Engineers you should be aware of.

For those who like to find winning investments this free list of undervalued 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 Indian exchanges.