Investing in Torrent Pharmaceuticals (NSE:TORNTPHARM) five years ago would have delivered you a 195% gain

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But on a lighter note, a good company can see its share price rise well over 100%. For instance, the price of Torrent Pharmaceuticals Limited (NSE:TORNTPHARM) stock is up an impressive 177% over the last five years. We note the stock price is up 1.5% in the last seven days.

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.

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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, Torrent Pharmaceuticals achieved compound earnings per share (EPS) growth of 12% per year. This EPS growth is slower than the share price growth of 23% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 60.39.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It is of course excellent to see how Torrent Pharmaceuticals has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Torrent Pharmaceuticals stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Torrent Pharmaceuticals' TSR for the last 5 years was 195%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Torrent Pharmaceuticals has rewarded shareholders with a total shareholder return of 13% in the last twelve months. That's including the dividend. Having said that, the five-year TSR of 24% a year, is even better. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. 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. To that end, you should be aware of the 1 warning sign we've spotted with Torrent Pharmaceuticals .

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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.