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For many, the main point of investing in the stock market is to achieve spectacular returns. And we've seen some truly amazing gains over the years. Don't believe it? Then look at the Maithan Alloys Limited (NSE:MAITHANALL) share price. It's 1416% higher than it was five years ago. This just goes to show the value creation that some businesses can achieve. The last week saw the share price soften some 3.1%.
Anyone who held for that rewarding ride would probably be keen to talk about it.
View our latest analysis for Maithan Alloys
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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, Maithan Alloys achieved compound earnings per share (EPS) growth of 46% per year. This EPS growth is slower than the share price growth of 72% per year, over the same period. 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.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Maithan Alloys has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Maithan Alloys stock, you should check out this FREE detailed report on its balance sheet.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. In the case of Maithan Alloys, it has a TSR of 1517% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Investors in Maithan Alloys had a tough year, with a total loss of 38% (including dividends), against a market gain of about 1.2%. 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. On the bright side, long term shareholders have made money, with a gain of 74% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Before forming an opinion on Maithan Alloys you might want to consider these 3 valuation metrics.