Sumitomo Rubber Industries' (TSE:5110) 293% YoY earnings expansion surpassed the shareholder returns over the past year

Passive investing in index funds can generate returns that roughly match the overall market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Sumitomo Rubber Industries, Ltd. (TSE:5110) share price is up 63% in the last 1 year, clearly besting the market return of around 38% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! And shareholders have also done well over the long term, with an increase of 46% in the last three years.

Since the stock has added JP¥24b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for Sumitomo Rubber Industries

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Sumitomo Rubber Industries was able to grow EPS by 293% in the last twelve months. This EPS growth is significantly higher than the 63% increase in the share price. Therefore, it seems the market isn't as excited about Sumitomo Rubber Industries as it was before. This could be an opportunity.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Sumitomo Rubber Industries 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?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Sumitomo Rubber Industries the TSR over the last 1 year was 69%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that Sumitomo Rubber Industries shareholders have received a total shareholder return of 69% over one year. That's including the dividend. That's better than the annualised return of 10% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. For example, we've discovered 1 warning sign for Sumitomo Rubber Industries that you should be aware of before investing here.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.