Five-Year Loss For L&T Finance Holdings Shareholders Driven By Shrinking Earnings

While it may not be enough for some shareholders, we think it is good to see the L&T Finance Holdings Limited (NSE:L&TFH) share price up 21% in a single quarter. But if you look at the last five years the returns have not been good. After all, the share price is down 50% in that time, significantly under-performing the market.

The recent uptick of 5.9% could be a positive sign of things to come, so let’s take a look at historical fundamentals.

See our latest analysis for L&T Finance Holdings

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Looking back five years, both L&T Finance Holdings’ share price and EPS declined; the latter at a rate of 6.4% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 13% per year, over the period. This implies that the market was previously too optimistic about the stock.

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

We know that L&T Finance Holdings has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, L&T Finance Holdings’ TSR for the last 5 years was -44%, 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 L&T Finance Holdings has rewarded shareholders with a total shareholder return of 13% in the last twelve months. And that does include the dividend. There’s no doubt those recent returns are much better than the TSR loss of 8% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. It’s always interesting to track share price performance over the longer term. But to understand L&T Finance Holdings better, we need to consider many other factors. For example, we’ve discovered 2 warning signs for L&T Finance Holdings (1 is a bit concerning!) that you should be aware of before investing here.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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.