The total return for Torrent Power (NSE:TORNTPOWER) investors has risen faster than earnings growth over the last five years

For many, the main objective of investing in the stock market is to achieve spectacular returns. While the best companies are hard to find, they can generate massive returns over long periods. For example, him Torrent Power Limited (NSE:TORNTPOWER) share price is up a whopping 333% in the last half decade, an attractive return for long-term holders. This simply demonstrates the value creation that some companies can achieve. It's also good to see that the share price is up 13% over the last quarter. But this movement could well have been favored by the reasonable dynamism of the market (an increase of 15% in 90 days).

In light of the stock's 3.7% drop last week, we want to dig into the long-term story and see if fundamentals have been the driver of the company's positive five-year performance.

See our latest analysis for Torrent Power

While some continue to teach the efficient markets hypothesis, it has been shown that markets are hyper-reactive dynamic systems and that investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Over five years of share price growth, Torrent Power achieved compound earnings per share (EPS) growth of 11% per year. This EPS growth is lower than the 34% average annual increase in the share price. 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.

The company's earnings per share (over time) are shown in the image below (click to see the exact numbers).

NSEI:TORNTPOWER Earnings Per Share Growth March 1, 2024

We know that Torrent Power has improved its results in the last three years, but what does the future hold for us? It may be worth taking a look at our free report on how your financial situation has changed over time.

What about dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. We note that for Torrent Power the TSR over the last 5 years was 409%, which is better than the share price return mentioned above. This is largely due to their dividend payments!

A different perspective

It's good to see Torrent Power has rewarded shareholders with a total shareholder return of 112% over the last twelve months. That includes the dividend. Given that the one-year TSR is better than the five-year TSR (the latter coming in at 38% per year), it would seem that the stock's performance has improved recently. With the share price momentum still strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. While it is worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we have identified 2 warning signs for Torrent Power that you should take into account.

For those who like to find winning investments this free list of growing companies with recent insider purchases, could be the solution.

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 torrent power 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.

See the free analysis

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.

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