Ruby Mills (NSE:RUBYMILLS) jumps 13% this week, though earnings growth is still tracking behind three-year shareholder returns

The most you can lose on any stock (assuming you don’t use leverage) is 100% of your money. But when you pick a company that is really flourishing, you can make more than 100%. For example, the The Ruby Mills Limited (NSE:RUBYMILLS) share price has soared 218% in the last three years. That sort of return is as solid as granite. It’s also good to see the share price up 97% over the last quarter.

Since it’s been a strong week for Ruby Mills shareholders, let’s have a look at trend of the longer term fundamentals.

Before we look at the performance, you might like to know that our analysis indicates that RUBYMILLS is potentially undervalued!

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During three years of share price growth, Ruby Mills achieved compound earnings per share growth of 45% per year. This EPS growth is remarkably close to the 47% average annual increase in the share price. This suggests that sentiment and expectations have not changed drastically. Au contraire, the share price change has arguably mimicked the EPS growth.

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

We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Dive deeper into the earnings by checking this interactive graph of Ruby Mills’ earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Ruby Mills the TSR over the last 3 years was 224%, which is better than the share price return mentioned above. And there’s no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It’s good to see that Ruby Mills has rewarded shareholders with a total shareholder return of 149% in the last twelve months. That’s including the dividend. That gain is better than the annual TSR over five years, which is 18%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It’s always interesting to track share price performance over the longer term. But to understand Ruby Mills better, we need to consider many other factors. Case in point: We’ve spotted 4 warning signs for Ruby Mills you should be aware of, and 2 of them are potentially serious.

But note: Ruby Mills may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.