Pulling back 6.6% this week, Sudarshan Chemical Industries' NSE:SUDARSCHEM) three-year decline in earnings may be coming into investors focus

While Sudarshan Chemical Industries Limited (NSE:SUDARSCHEM) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 28% in the last quarter. But that doesn't change the fact that the returns over the last three years have been very strong. The share price marched upwards over that time, and is now 139% higher than it was. So the recent fall in the share price should be viewed in that context. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.

Although Sudarshan Chemical Industries has shed ₹5.1b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

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To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Over the last three years, Sudarshan Chemical Industries failed to grow earnings per share, which fell 19% (annualized).

So we doubt that the market is looking to EPS for its main judge of the company's value. Given this situation, it makes sense to look at other metrics too.

Languishing at just 0.5%, we doubt the dividend is doing much to prop up the share price. It could be that the revenue growth of 35% per year is viewed as evidence that Sudarshan Chemical Industries is growing. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Take a more thorough look at Sudarshan Chemical Industries' financial health with this free report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Sudarshan Chemical Industries the TSR over the last 3 years was 142%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

While the broader market gained around 7.6% in the last year, Sudarshan Chemical Industries shareholders lost 18% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 13% 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 3 warning signs for Sudarshan Chemical Industries that you should be aware of.

We will like Sudarshan Chemical Industries better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.