Nissan Shatai (TSE:7222) investors are up 5.4% in the past week, but earnings have declined over the last three years

By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, Nissan Shatai Co., Ltd. (TSE:7222) shareholders have seen the share price rise 96% over three years, well in excess of the market return (45%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 3.2% in the last year, including dividends.

Since it's been a strong week for Nissan Shatai shareholders, let's have a look at trend of the longer term fundamentals.

We've discovered 3 warning signs about Nissan Shatai. View them for free.

There is no denying that markets are sometimes efficient, but prices do not always reflect 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.

During the three years of share price growth, Nissan Shatai actually saw its earnings per share (EPS) drop 14% per year. In this instance, recent extraordinary items impacted the earnings.

Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

The modest 1.2% dividend yield is unlikely to be propping up the share price. It may well be that Nissan Shatai revenue growth rate of 10% over three years has convinced shareholders to believe in a brighter future. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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 Nissan Shatai the TSR over the last 3 years was 104%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Nissan Shatai shareholders gained a total return of 3.2% during the year. But that return falls short of the market. On the bright side, the longer term returns (running at about 4% a year, over half a decade) look better. Maybe the share price is just taking a breather while the business executes on its growth strategy. 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 learn about the 3 warning signs we've spotted with Nissan Shatai (including 1 which is significant) .

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.