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While Rico Auto Industries Limited (NSE:RICOAUTO) shareholders are probably generally happy, the stock hasn’t had particularly good run recently, with the share price falling 11% in the last quarter. But that doesn’t change the fact that the returns over the last half decade have been spectacular. In fact, during that period, the share price climbed 470%. Impressive! Arguably, the recent fall is to be expected after such a strong rise. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain.
See our latest analysis for Rico Auto Industries
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In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 the last half decade, Rico Auto Industries became profitable. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It is of course excellent to see how Rico Auto Industries has grown profits over the years, but the future is more important for shareholders. This free interactive report on Rico Auto Industries’s balance sheet strength is a great place to start, if you want to investigate the stock further.
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. We note that for Rico Auto Industries the TSR over the last 5 years was 510%, 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
While the broader market gained around 4.1% in the last year, Rico Auto Industries shareholders lost 15% (even including dividends). 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. Longer term investors wouldn’t be so upset, since they would have made 44%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.