The 13% return delivered to Power Finance’s (NSE:PFC) shareholders actually lagged YoY earnings growth

For many, the main point of investing is to generate higher returns than the overall market. But in any portfolio, there will be mixed results between individual stocks. So we wouldn’t blame long term Power Finance Corporation Limited (NSE:PFC) shareholders for doubting their decision to hold, with the stock down 20% over a half decade. On the other hand, we note it’s up 8.8% in about a month.

Although the past week has been more reassuring for shareholders, they’re still in the red over the last five years, so let’s see if the underlying business has been responsible for the decline.

Our analysis indicates that PFC is potentially undervalued!

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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 the unfortunate half decade during which the share price slipped, Power Finance actually saw its earnings per share (EPS) improve by 44% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.

It is unusual to see such modest share price growth in the face of sustained…