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UltraTech Cement’s (NSE:ULTRACEMCO) 19% CAGR outpaced the company’s earnings growth over the same three-year period

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Buying a low-cost index fund will get you the average market return. But in any diversified portfolio of stocks, you’ll see some that fall short of the average. For example, the UltraTech Cement Limited (NSE:ULTRACEMCO) share price return of 68% over three years lags the market return in the same period. Disappointingly, the share price is down 15% in the last year.

Since it’s been a strong week for UltraTech Cement 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 ULTRACEMCO is potentially overvalued!

To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ 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 three years of share price growth, UltraTech Cement achieved compound earnings per share growth of 31% per year. This EPS growth is higher than the 19% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock.

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

earnings-per-share-growth
NSEI:ULTRACEMCO Earnings Per Share Growth September 12th 2022

It is of course excellent to see how UltraTech Cement has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

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 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 UltraTech Cement the TSR over the last 3 years was 71%, 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

While the broader market gained around 6.9% in the last year, UltraTech Cement shareholders lost 14% (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 10% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Before deciding if you like the current share price, check how UltraTech Cement scores on these 3 valuation metrics.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.

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.

Valuation is complex, but we’re helping make it simple.

Find out whether UltraTech Cement is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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