G N A Axles (NSE:GNA) jumps 13% this week, though earnings growth is still tracking behind five-year shareholder returns
When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Better yet, you'd like to see the share price move up more than the market average. Unfortunately for shareholders, while the G N A Axles Limited (NSE:GNA) share price is up 98% in the last five years, that's less than the market return. Unfortunately the share price is down 15% in the last year.
On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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).
During five years of share price growth, G N A Axles achieved compound earnings per share (EPS) growth of 30% per year. This EPS growth is higher than the 15% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. This free interactive report on G N A Axles' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share 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 raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of G N A Axles, it has a TSR of 104% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Investors in G N A Axles had a tough year, with a total loss of 14% (including dividends), against a market gain of about 4.2%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 15% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 1 warning sign we've spotted with G N A Axles .
G N A Axles is not the only stock that insiders are buying. For those who like to find lesser know companies this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Indian exchanges.
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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.