Investors in Muthoot Finance (NSE: MUTHOOTFIN) will be pleased with their strong return of 175% over the past five years

The worst outcome after buying shares in a company (assuming there is no leverage) would be if you lost all the money you invested. But on the bright side, you can earn way more than 100% on a really good deed. For example, the Muthoot Finance Limited (NSE: MUTHOOTFIN) the stock price has soared 148% over the past half-decade. Most would be very happy. In addition to good news, the share price has climbed 9.8% in thirty days. But it could be linked to good market conditions – shares in its market have risen 8.3% over the past month.

With that in mind, it’s worth looking at whether the company’s underlying fundamentals have been driving long-term performance, or if there are any gaps.

See our latest analysis for Muthoot Finance

It is undeniable that markets are sometimes efficient, but prices do not always reflect the underlying performance of companies. One way to look at how market sentiment has changed over time is to look at the interaction between a company’s stock price and its earnings per share (EPS).

In half a decade, Muthoot Finance has managed to grow its earnings per share by 27% per year. The EPS growth is more impressive than the 20% annual share price gain over the same period. Therefore, it seems that the market has become relatively pessimistic towards the company. The reasonably low P/E ratio of 11.26 also suggests market apprehension.

You can see below how the EPS has evolved over time (find out the exact values ​​by clicking on the image).

NSEI: MUTHOOTFIN Earnings Per Share Growth August 11, 2022

Dive deeper into key Muthoot Finance metrics by viewing this interactive chart of Muthoot Finance earnings, revenue and cash flow.

What about dividends?

It is important to consider the total shareholder return, as well as the stock price return, for a given stock. The TSR incorporates the value of any spin-offs or discounted capital increases, as well as any dividends, on the basis of the assumption that dividends are reinvested. So for companies that pay a generous dividend, the TSR is often much higher than the stock price return. In the case of Muthoot Finance, it has posted a TSR of 175% over the last 5 years. This exceeds the performance of its share price that we mentioned earlier. The dividends paid by the company thus inflated the total return to shareholders.

A different perspective

Muthoot Finance shareholders are down 21% for the year (even including dividends), but the market itself is up 11%. Even good stock prices sometimes drop, but we want to see improvements in a company’s fundamentals before we get too interested. On the positive side, long-term shareholders made money, gaining 22% per year over half a decade. It could be that the recent selloff is an opportunity, so it may be worth checking the fundamentals for signs of a long-term growth trend. I find it very interesting to look at stock price over the long term as a proxy for company performance. But to really get insight, we also need to consider other information. Take risks, for example – Muthoot Finance has 2 warning signs (and 1 that can’t be ignored) that we think you should know about.

Sure, you might find a fantastic investment by looking elsewhere. So take a look at this free list of companies that we believe will increase their profits.

Please note that the market returns quoted in this article reflect the average market-weighted returns of the stocks currently trading on the IN exchanges.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

Robert D. Coleman