When you buy shares in a company, it's worth considering the possibility that it could fail and you could lose your money. But on the plus side, you can earn a lot more than 100% on a really good stock. Long-term torrent power limited (NSE: TORNTPOWER) shareholders know this all too well, as the stock is up 126% in five years. It's also good to see that the stock price rose 12% over the last quarter.
Following a strong 7-day performance, let's look at what role the company's fundamentals have played in driving long-term shareholder returns.
Check out our latest Torrent Power review
SWOT Analysis for Torrent Power
- Debt is well covered by earnings and cash flows.
- Earnings declined over the past year.
- The dividend is low compared to the top 25% of dividend payers in the electric utility market.
- Annual earnings are forecast to grow for the next 4 years.
- The current share price is below our fair value estimate.
- Pay a dividend but the company has no free cash flows.
- Annual earnings are expected to grow more slowly than the Indian market.
There's no denying that markets are sometimes efficient, but prices don't always reflect underlying business performance. An imperfect but simple way to consider how market perception of a company has changed is to compare the change in earnings per share (EPS) to the movement of the stock price.
During five years of share price growth, Torrent Power achieved compound earnings per share (EPS) growth of 6.5% per year. This EPS growth is less than the 18% average annual increase in share price. Therefore, it is fair to assume that the market has a better opinion of the business than it did five years ago. And that's not surprising given the track record of growth.
The image below shows how EPS has tracked over time (if you click on the image you can see more details).
Dive deeper into key Torrent Power metrics by checking out this interactive Torrent Power chart profit, income and cash flow.
What about dividends?
It is important to take into account the total shareholder return, as well as the share price return, for any given stock. While the stock 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 increase or spin-off. So for companies that pay generous dividends, the TSR is typically much higher than the stock price return. In the case of Torrent Power, it has a TSR of 167% for the last 5 years. That beats the stock price performance we mentioned above. The dividends paid by the company have thus boosted the total shareholder return.
a different perspective
It's nice to see that Torrent Power shareholders have received a total shareholder return of 2.7% over the last year. And that includes the dividend. However, the TSR over five years, coming in at 22% per year, is even more impressive. Potential buyers understandably feel like they've missed the opportunity, but it's always possible for the business to keep running full steam ahead. I find it very interesting to look at the stock price over the long term as an indicator of business performance. But to get a real picture, we must also consider other information. Take risks, for example - Torrent Power has 4 warning signs we think you should be aware.
Of course, you can find a fantastic investment if you look elsewhere. so take a look at this free list of companies that we expect to increase their profits.
Please note that the market returns quoted in this article reflect the market weighted average returns of shares currently listed on Indian stock exchanges.
Valuation is complex, but we are helping to simplify it.
Find out if torrent power is potentially overvalued or undervalued by consulting our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, internal transactions and financial health.
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This Simply Wall St article is general in nature. We provide feedback based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell any stock, and it does not take into account your goals or 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 does not have a position in any of the mentioned stocks.
