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Earnings growth outpaced the favorable 42% return delivered to HPC SYSTEMS (TSE:6597) shareholders over the last year
The simplest way to invest in stocks is to buy exchange traded funds. But investors can boost returns by picking market-beating companies to own shares in. To wit, the HPC SYSTEMS Inc. (TSE:6597) share price is 40% higher than it was a year ago, much better than the market return of around 26% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! On the other hand, longer term shareholders have had a tougher run, with the stock falling 3.9% in three years.
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
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.
HPC SYSTEMS was able to grow EPS by 107% in the last twelve months. It's fair to say that the share price gain of 40% did not keep pace with the EPS growth. So it seems like the market has cooled on HPC SYSTEMS, despite the growth. Interesting.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that HPC SYSTEMS has improved its bottom line lately, but is it going to grow revenue? Check if analysts think HPC SYSTEMS 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 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of HPC SYSTEMS, it has a TSR of 42% for the last 1 year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's nice to see that HPC SYSTEMS shareholders have received a total shareholder return of 42% over the last year. And that does include the dividend. Notably the five-year annualised TSR loss of 3% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. To that end, you should be aware of the 3 warning signs we've spotted with HPC SYSTEMS .
For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.
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.