When you buy shares in a company, it is worth considering the possibility that it will fail and you could lose your money. But the good thing is that if you buy shares of a high-quality company at the right price, you can earn much more than 100%. A great example is Torrent Pharmaceuticals Limited (NSE:TORNTPHARM) which saw its share price rise 140% in five years. Meanwhile, the share price is 1.9% higher than a week ago.
With this in mind, it is worth seeing if the company's underlying fundamentals have been the driver of long-term performance or if there are some discrepancies.
View our latest analysis for Torrent Pharmaceuticals
in his essay The Graham-and-Doddsville Superinvestors Warren Buffett described how stock prices do not always rationally reflect the value of a company. An imperfect but simple way to consider how the market perception of a company has changed is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, Torrent Pharmaceuticals achieved compound earnings per share (EPS) growth of 14% per year. This EPS growth is slower than the share price growth of 19% annually over the same period. Therefore, it's fair to assume that the market has a higher opinion of the business than it did five years ago. And that's not surprising given the growth track record. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 51.23.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know Torrent Pharmaceuticals has improved its results lately, but is it going to increase its revenue? This free report showing analysts' revenue forecasts should help you determine whether EPS growth can be sustained.
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 incorporates the value of any spin-off or discounted capital raising, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is usually much higher than the share price return. As it happens, Torrent Pharmaceuticals' TSR for the last 5 years was 158%, which beats the share price return mentioned above. This is largely due to their dividend payments!
A different perspective
It's good to see that Torrent Pharmaceuticals shareholders have received a total shareholder return of 23% over the last year. That includes the dividend. Given that the one-year TSR is better than the five-year TSR (the latter coming in at 21% per year), it would seem that the stock's performance has improved recently. Someone with an optimistic outlook could see the recent improvement in TSR as an indication that the business itself is improving over time. It is always interesting to follow long-term share price performance. But to better understand Torrent Pharmaceuticals, we need to consider many other factors. Take a chance, for example: Torrent Pharmaceuticals has 2 warning signs We think you should take this into account.
Of course Torrent Pharmaceuticals may not be the best stock to buy. So you might want to check this out. free growth stock collection.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Indian exchanges.
Valuation is complex, but we are helping to simplify it.
Find out if Torrente Pharmaceuticals is potentially overvalued or undervalued by checking out our full analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your objectives or financial situation. Our goal is to provide you with focused, long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
