Nasdaq
華爾街日報TOKYO KEIKI's (TSE:7721) five-year earnings growth trails the 48% YoY shareholder returns
Buying shares in the best businesses can build meaningful wealth for you and your family. While the best companies are hard to find, but they can generate massive returns over long periods. For example, the TOKYO KEIKI INC. (TSE:7721) share price is up a whopping 538% in the last half decade, a handsome return for long term holders. This just goes to show the value creation that some businesses can achieve. On top of that, the share price is up 17% in about a quarter. But this move may well have been assisted by the reasonably buoyant market (up 7.5% in 90 days). Anyone who held for that rewarding ride would probably be keen to talk about it.
On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
Over half a decade, TOKYO KEIKI managed to grow its earnings per share at 31% a year. This EPS growth is lower than the 45% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It is of course excellent to see how TOKYO KEIKI has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at TOKYO KEIKI's financial health with this free report on its balance sheet.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, TOKYO KEIKI's TSR for the last 5 years was 604%, 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 good to see that TOKYO KEIKI has rewarded shareholders with a total shareholder return of 93% in the last twelve months. That's including the dividend. That gain is better than the annual TSR over five years, which is 48%. 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - TOKYO KEIKI has 1 warning sign we think you should be aware of.
We will like TOKYO KEIKI 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.