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Long term investing can be life changing when you buy and hold the truly great businesses. While the best companies are hard to find, but they can generate massive returns over long periods. To wit, the Bajaj Finance Limited (NSE:BAJFINANCE) share price has soared 1175% over five years. And this is just one example of the epic gains achieved by some long term investors.
We love happy stories like this one. The company should be really proud of that performance!
View our latest analysis for Bajaj Finance
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, Bajaj Finance achieved compound earnings per share (EPS) growth of 38% per year. This EPS growth is lower than the 66% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 45.27.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Dive deeper into the earnings by checking this interactive graph of Bajaj Finance's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Bajaj Finance's TSR for the last 5 years was 1191%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that Bajaj Finance has rewarded shareholders with a total shareholder return of 31% in the last twelve months. Of course, that includes the dividend. However, the TSR over five years, coming in at 67% per year, is even more impressive. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. 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.