Welspun India Limited (NSE:WELSPUNIND) shareholders might be concerned after seeing the share price drop 10% in the last quarter. But that does not change the realty that the stock’s performance has been terrific, over five years. In fact, during that period, the share price climbed 444%. Impressive! So it might be that some shareholders are taking profits after good performance. Only time will tell if there is still too much optimism currently reflected in the share price.
Check out our latest analysis for Welspun India
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 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, Welspun India achieved compound earnings per share (EPS) growth of 39% per year. That makes the EPS growth particularly close to the yearly share price growth of 40%. That suggests that the market sentiment around the company hasn’t changed much over that time. Indeed, it would appear the share price is reacting to the EPS.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
This free interactive report on Welspun India’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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Welspun India’s TSR for the last 5 years was 482%, 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
We regret to report that Welspun India shareholders are down 15% for the year (even including dividends). Unfortunately, that’s worse than the broader market decline of 4.1%. Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 42% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Before forming an opinion on Welspun India you might want to consider these 3 valuation metrics.