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Gulshan Polyols Limited (NSE:GULPOLY) shareholders should be happy to see the share price up 12% in the last month. But that doesn't change the fact that the returns over the last three years have been less than pleasing. After all, the share price is down 31% in the last three years, significantly under-performing the market.
View our latest analysis for Gulshan Polyols
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 three years that the share price fell, Gulshan Polyols's earnings per share (EPS) dropped by 7.8% each year. This reduction in EPS is slower than the 12% annual reduction in the share price. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. The less favorable sentiment is reflected in its current P/E ratio of 10.67.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. This free interactive report on Gulshan Polyols's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Gulshan Polyols's TSR for the last 3 years was -29%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Gulshan Polyols shareholders are down 9.9% for the year (even including dividends) , but the broader market is up 1.3%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. However, the loss over the last year isn't as bad as the 11% per annum loss investors have suffered over the last three years. We'd need clear signs of growth in the underlying business before we could muster much enthusiasm for this one. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.