Investors in Torrent Power (NSE:TORNTPOWER) have seen enviable returns of 356% over the past five years

Buying shares in the best businesses can build meaningful wealth for you and your family. And we've seen some truly amazing gains over the years. For example, the Torrent Power Limited (NSE:TORNTPOWER) share price is up a whopping 304% in the last half decade, a handsome return for long term holders. And this is just one example of the epic gains achieved by some long term investors. Meanwhile the share price is 2.2% higher than it was a week ago.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

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There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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).

Over half a decade, Torrent Power managed to grow its earnings per share at 32% a year. That makes the EPS growth particularly close to the yearly share price growth of 32%. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. In fact, the share price seems to largely reflect the EPS growth.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It is of course excellent to see how Torrent Power has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Torrent Power's financial health with this free 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. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Torrent Power the TSR over the last 5 years was 356%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in Torrent Power had a tough year, with a total loss of 11% (including dividends), against a market gain of about 4.6%. 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. Longer term investors wouldn't be so upset, since they would have made 35%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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 example, we've discovered 2 warning signs for Torrent Power that you should be aware of before investing here.

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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.