McDonald's Holdings Company (Japan)'s (TSE:2702) investors will be pleased with their 21% return over the last three years

Low-cost index funds make it easy to achieve average market returns. But across the board there are plenty of stocks that underperform the market. That's what has happened with the McDonald's Holdings Company (Japan), Ltd. (TSE:2702) share price. It's up 18% over three years, but that is below the market return. Unfortunately, the share price has fallen 5.4% over twelve months.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

McDonald's Holdings Company (Japan) was able to grow its EPS at 11% per year over three years, sending the share price higher. The average annual share price increase of 6% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that McDonald's Holdings Company (Japan) has improved its bottom line lately, but is it going to grow revenue? Check if analysts think McDonald's Holdings Company (Japan) will grow revenue in the future.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for McDonald's Holdings Company (Japan) the TSR over the last 3 years was 21%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in McDonald's Holdings Company (Japan) had a tough year, with a total loss of 4.6% (including dividends), against a market gain of about 6.2%. 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. On the bright side, long term shareholders have made money, with a gain of 0.3% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Before deciding if you like the current share price, check how McDonald's Holdings Company (Japan) scores on these 3 valuation metrics.

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