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Taro Pharmaceutical Industries (NYSE:TARO) investors are sitting on a loss of 32% if they invested five years ago

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Ideally, your overall portfolio should beat the market average. But in any portfolio, there will be mixed results between individual stocks. So we wouldn't blame long term Taro Pharmaceutical Industries Ltd. (NYSE:TARO) shareholders for doubting their decision to hold, with the stock down 41% over a half decade. Shareholders have had an even rougher run lately, with the share price down 16% in the last 90 days.

So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.

Check out our latest analysis for Taro Pharmaceutical Industries

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...' 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.

During five years of share price growth, Taro Pharmaceutical Industries moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics may better explain the share price move.

Arguably, the revenue drop of 11% a year for half a decade suggests that the company can't grow in the long term. This has probably encouraged some shareholders to sell down the stock.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

earnings-and-revenue-growth
earnings-and-revenue-growth

We know that Taro Pharmaceutical Industries has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Taro Pharmaceutical Industries stock, you should check out this free report showing analyst profit forecasts.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Taro Pharmaceutical Industries' total shareholder return (TSR) and its share price change, which we've covered above. 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. We note that Taro Pharmaceutical Industries' TSR, at -32% is higher than its share price return of -41%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.

A Different Perspective

Taro Pharmaceutical Industries shareholders are down 1.6% for the year, but the market itself is up 35%. 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. However, the loss over the last year isn't as bad as the 6% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Taro Pharmaceutical Industries is showing 1 warning sign in our investment analysis , you should know about...

Of course Taro Pharmaceutical Industries may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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