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Passive investing in index funds can generate returns that roughly match the overall market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Tarapur Transformers Limited (NSE:TARAPUR) share price is up 49% in the last year, clearly besting the market return of around -1.6% (not including dividends). So that should have shareholders smiling. However, the longer term returns haven't been so impressive, with the stock up just 15% in the last three years.
View our latest analysis for Tarapur Transformers
Given that Tarapur Transformers only made minimal earnings in the last twelve months, we'll focus on revenue to gauge its business development. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
Over the last twelve months, Tarapur Transformers's revenue grew by 31%. That's a fairly respectable growth rate. Buyers pushed the share price 49% in response, which isn't unreasonable. If the company can maintain the revenue growth, the share price could go higher still. But it's crucial to check profitability and cash flow before forming a view on the future.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
It's good to see that Tarapur Transformers has rewarded shareholders with a total shareholder return of 49% in the last twelve months. Notably the five-year annualised TSR loss of 7.5% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. Before deciding if you like the current share price, check how Tarapur Transformers scores on these 3 valuation metrics.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.