Crompton Greaves Consumer Electricals' (NSE:CROMPTON) five-year total shareholder returns outpace the underlying earnings growth

Simply Wall St · 10/18 07:14

The main point of investing for the long term is to make money. Furthermore, you'd generally like to see the share price rise faster than the market. Unfortunately for shareholders, while the Crompton Greaves Consumer Electricals Limited (NSE:CROMPTON) share price is up 62% in the last five years, that's less than the market return. On a brighter note, more newer shareholders are probably rather content with the 40% share price gain over twelve months.

While the stock has fallen 6.0% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

See our latest analysis for Crompton Greaves Consumer Electricals

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Over half a decade, Crompton Greaves Consumer Electricals managed to grow its earnings per share at 1.9% a year. This EPS growth is lower than the 10% 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. This optimism is visible in its fairly high P/E ratio of 56.37.

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

earnings-per-share-growth
NSEI:CROMPTON Earnings Per Share Growth October 18th 2024

This free interactive report on Crompton Greaves Consumer Electricals' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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. We note that for Crompton Greaves Consumer Electricals the TSR over the last 5 years was 69%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Crompton Greaves Consumer Electricals provided a TSR of 41% over the year (including dividends). That's fairly close to the broader market return. That gain looks pretty satisfying, and it is even better than the five-year TSR of 11% per year. It is possible that management foresight will bring growth well into the future, even if the share price slows down. 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. Take risks, for example - Crompton Greaves Consumer Electricals has 1 warning sign we think you should be aware of.

We will like Crompton Greaves Consumer Electricals better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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