Hoden Seimitsu Kako Kenkyusho (TSE:6469) shareholders notch a 66% CAGR over 3 years, yet earnings have been shrinking

For us, stock picking is in large part the hunt for the truly magnificent stocks. Not every pick can be a winner, but when you pick the right stock, you can win big. One bright shining star stock has been Hoden Seimitsu Kako Kenkyusho Co., Ltd. (TSE:6469), which is 339% higher than three years ago. Also pleasing for shareholders was the 27% gain in the last three months.

The past week has proven to be lucrative for Hoden Seimitsu Kako Kenkyusho investors, so let's see if fundamentals drove the company's three-year performance.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).

Over the last three years, Hoden Seimitsu Kako Kenkyusho failed to grow earnings per share, which fell 22% (annualized).

So we doubt that the market is looking to EPS for its main judge of the company's value. Therefore, we think it's worth considering other metrics as well.

Languishing at just 0.6%, we doubt the dividend is doing much to prop up the share price. It may well be that Hoden Seimitsu Kako Kenkyusho revenue growth rate of 4.8% over three years has convinced shareholders to believe in a brighter future. If the company is being managed for the long term good, today's shareholders might be right to hold on.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We know that Hoden Seimitsu Kako Kenkyusho has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for Hoden Seimitsu Kako Kenkyusho in this interactive graph of future profit estimates.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Hoden Seimitsu Kako Kenkyusho, it has a TSR of 360% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's nice to see that Hoden Seimitsu Kako Kenkyusho shareholders have received a total shareholder return of 109% over the last year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 33% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Hoden Seimitsu Kako Kenkyusho better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Hoden Seimitsu Kako Kenkyusho .

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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

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

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.