Despite Retreating ₹9.6b Last Week, Aditya Birla Fashion and Retail Investors Are Up 74% Over Five Years

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the Aditya Birla Fashion and Retail Limited (NSE:ABFRL) share price is up 71% in the last 5 years, clearly besting the market return of around 50% (ignoring dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 13% in the last year.

While the stock has fallen 3.2% this week, it’s worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

See our latest analysis for Aditya Birla Fashion and Retail

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 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 the last half decade, Aditya Birla Fashion and Retail became profitable. That would generally be considered a positive, so we’d expect the share price to be up. Since the company was unprofitable five years ago, but not three years ago, it’s worth taking a look at the returns in the last three years, too. We can see that the Aditya Birla Fashion and Retail share price is up 29% in the last three years. In the same period, EPS is up 0.5% per year. Notably, the EPS growth has been slower than the annualised share price gain of 9% over three years. So one can reasonably conclude the market is more enthusiastic about the stock than it was three years ago.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that Aditya Birla Fashion and Retail has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Aditya Birla Fashion and Retail will grow revenue in the future.

What About The Total Shareholder Return (TSR)?

Investors should note that there’s a difference between Aditya Birla Fashion and Retail’s total shareholder return (TSR) and its share price change, which we’ve covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Aditya Birla Fashion and Retail hasn’t been paying dividends, but its TSR of 74% exceeds its share price return of 71%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

We’re pleased to report that Aditya Birla Fashion and Retail shareholders have received a total shareholder return of 13% over one year. That’s better than the annualised return of 12% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Consider risks, for instance. Every company has them, and we’ve spotted 1 warning sign for Aditya Birla Fashion and Retail you should know about.

Of course Aditya Birla Fashion and Retail 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.

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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.