Earnings growth of 33% over 1 year hasn't been enough to translate into positive returns for Mazda Motor (TSE:7261) shareholders

Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Mazda Motor Corporation (TSE:7261) shareholders over the last year, as the share price declined 31%. That falls noticeably short of the market return of around 11%. On the bright side, the stock is actually up 16% in the last three years. Shareholders have had an even rougher run lately, with the share price down 28% in the last 90 days.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

See our latest analysis for Mazda Motor

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 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).

Even though the Mazda Motor share price is down over the year, its EPS actually improved. It could be that the share price was previously over-hyped.

The divergence between the EPS and the share price is quite notable, during the year. But we might find some different metrics explain the share price movements better.

Mazda Motor's dividend seems healthy to us, so we doubt that the yield is a concern for the market. From what we can see, revenue is pretty flat, so that doesn't really explain the share price drop. Of course, it could simply be that it simply fell short of the market consensus expectations.

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

Mazda Motor is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So we recommend checking out this free report showing consensus forecasts

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Mazda Motor's TSR for the last 1 year was -29%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

While the broader market gained around 11% in the last year, Mazda Motor shareholders lost 29% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 5%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Mazda Motor better, we need to consider many other factors. Take risks, for example - Mazda Motor has 2 warning signs (and 1 which is significant) we think you should know about.

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.

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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.