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When we invest, we're generally looking for stocks that outperform the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, long term The Indian Hotels Company Limited (NSE:INDHOTEL) shareholders have enjoyed a 59% share price rise over the last half decade, well in excess of the market return of around 35% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 18% in the last year, including dividends.
See our latest analysis for Indian Hotels
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 the five years of share price growth, Indian Hotels moved from a loss to profitability. That would generally be considered a positive, so we'd expect the share price to be up.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It is of course excellent to see how Indian Hotels has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Indian Hotels stock, you should check out this FREE detailed report on its balance sheet.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. As it happens, Indian Hotels's TSR for the last 5 years was 71%, 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
It's nice to see that Indian Hotels shareholders have received a total shareholder return of 18% over the last year. That's including the dividend. That's better than the annualised return of 11% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Is Indian Hotels cheap compared to other companies? These 3 valuation measures might help you decide.