The worst outcome, after buying shares in a company (assuming there is no leverage), would be if you lose all the money you invested. But on a lighter note, a good company can see its stock price rise much more than 100%. A great example is Torrent power limited (NSE: TORNTPOWER) which saw its share price rise 173% in five years. Shareholders were also pleased with the 19% gain in the last three months. But this could be related to the strength of the market, which has risen 13% in the last three months.
Check out our latest Torrent Power review
In your essay The Graham and Doddsville Superinverters 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 earnings per share (EPS) with the movement of the share price.
During five years of stock price growth, Torrent Power achieved compound growth in earnings per share (EPS) of 7.5% annually. This EPS growth is less than the 22% annual average increase in the share price. Therefore, it is fair to assume that the market has a higher opinion of the business than five years ago. And that's not surprising given the growth record.
The company's earnings per share (over time) are shown in the image below (click for exact numbers).
This free interactive report on Torrent Power earnings, income and cash flow it's a great place to start, if you want to research stocks further.
What about dividends?
It is important to consider the total return to the shareholder, as well as the return to the share price, for any given stock. While the share price performance 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 increase or spin-off. The TSR arguably provides a more complete picture of the performance generated by a stock. We note that for Torrent Power, the TSR for the last 5 years was 207%, which is better than the share price performance mentioned above. Dividends paid by the company have thus boosted the total shareholder return.
A different perspective
Torrent Power provided a TSR of 52% for the year (including dividends). That's pretty close to the overall market performance. Most would be happy with a profit, and it helps that the performance for the year is actually better than the average performance for five years, which was 25%. It is possible that the management forecast will generate growth in the future, even if the share price slows down. While it is worth considering the different impacts that market conditions can have on the stock price, there are other factors that are even more important. For example, we have discovered 2 Warning Signs for Torrent Power that you should know before investing here.
Of course Torrent Power may not be the best action to buy. Then you may want to see this free growth stock collection.
Please note that the market returns quoted in this article reflect the market weighted average returns of stocks currently traded on IN exchanges.
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This Simply Wall St article is general in nature. It is not a recommendation to buy or sell shares, and it does not take into account your objectives or your financial situation. Our goal is to provide you with long-term focused 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 listed stocks.
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