Should Bharti Airtel be disappointed with their 55% profit?

These days it’s easy to simply buy an index fund, and your returns should (roughly) match the market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the Bharti Airtel Limited share price is 55% higher than it was a year ago, much better than the market decline of around 18% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! Looking back further, the stock price is 49% higher than it was three years ago.

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

Over the last twelve months Bharti Airtel went from profitable to unprofitable. While some may see this as temporary, we’re a skeptical bunch, and so we’re a little surprised to see the share price go up. We might get a clue to explain the share price move by looking to other metrics.

However the year on year revenue growth of 7.0% would help. We do see some companies suppress earnings in order to accelerate revenue growth.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. If you are thinking of buying or selling Bharti Airtel stock, you should check out this free report showing analyst profit forecasts.

What about the Total Shareholder Return (TSR)?

We’d be remiss not to mention the difference between Bharti Airtel’s total shareholder return (TSR) and its share price return. 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. Its history of dividend payouts mean that Bharti Airtel’s TSR of 55% over the last year is better than the share price return.

A Different Perspective

We’re pleased to report that Bharti Airtel shareholders have received a total shareholder return of 55% over one year. That gain is better than the annual TSR over five years, which is 7.8%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It’s always interesting to track share price performance over the longer term. But to understand Bharti Airtel better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We’ve identified 2 warning signs with Bharti Airtel (at least 1 which can’t be ignored) , and understanding them should be part of your investment process.

―Simply Wall St