For many, the main point of investing in the stock market is to achieve spectacular returns. While not every stock performs well, when investors win, they can win big. Don’t believe it? Then look at the Relaxo Footwears Limited (NSE:RELAXO) share price. It’s 550% higher than it was five years ago. This just goes to show the value creation that some businesses can achieve. In the last week the share price is up 2.7%. Anyone who held for that rewarding ride would probably be keen to talk about it.
With that in mind, it’s worth seeing if the company’s underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Over half a decade, Relaxo Footwears managed to grow its earnings per share at 18% a year. This EPS growth is lower than the 45% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That’s not necessarily surprising considering the five-year track record of earnings growth. This optimism is visible in its fairly high P/E ratio of 114.76.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
This free interactive report on Relaxo Footwears’ earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
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-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Relaxo Footwears, it has a TSR of 556% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
It’s nice to see that Relaxo Footwears shareholders have received a total shareholder return of 52% over the last year. That’s including the dividend. That gain is better than the annual TSR over five years, which is 46%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. If you would like to research Relaxo Footwears in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
Of course Relaxo Footwears may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.