U.S. Markets closed

Volatility 101: Should Taro Pharmaceutical Industries (NYSE:TARO) Shares Have Dropped 44%?

Simply Wall St

While it may not be enough for some shareholders, we think it is good to see the Taro Pharmaceutical Industries Ltd. (NYSE:TARO) share price up 14% in a single quarter. But that doesn't change the fact that the returns over the last five years have been less than pleasing. In fact, the share price is down 44%, which falls well short of the return you could get by buying an index fund.

Check out our latest analysis for Taro Pharmaceutical Industries

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.

Looking back five years, both Taro Pharmaceutical Industries's share price and EPS declined; the latter at a rate of 4.9% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 11% per year, over the period. This implies that the market is more cautious about the business these days.

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

NYSE:TARO Past and Future Earnings, January 16th 2020

We know that Taro Pharmaceutical Industries has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Taro Pharmaceutical Industries will grow revenue in the future.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Taro Pharmaceutical Industries'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. Taro Pharmaceutical Industries hasn't been paying dividends, but its TSR of -36% exceeds its share price return of -44%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

Investors in Taro Pharmaceutical Industries had a tough year, with a total loss of 5.7%, against a market gain of about 27%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, longer term shareholders are suffering worse, given the loss of 8.5% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. Before forming an opinion on Taro Pharmaceutical Industries you might want to consider these 3 valuation metrics.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.