Nomura Research Institute's (TSE:4307) investors will be pleased with their notable 100% return over the last three years

By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, Nomura Research Institute, Ltd. (TSE:4307) shareholders have seen the share price rise 92% over three years, well in excess of the market return (68%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 34%, including dividends.

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

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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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Nomura Research Institute was able to grow its EPS at 14% per year over three years, sending the share price higher. This EPS growth is lower than the 24% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did three years ago. It's not unusual to see the market 're-rate' a stock, after a few years of growth.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that Nomura Research Institute has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Nomura Research Institute's TSR for the last 3 years was 100%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Nomura Research Institute shareholders have received a total shareholder return of 34% over the last year. That's including the dividend. That gain is better than the annual TSR over five years, which is 13%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Before forming an opinion on Nomura Research Institute you might want to consider these 3 valuation metrics.

We will like Nomura Research Institute better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.