Sumitomo Mitsui Trust Holdings (TSE:8309) shareholders notch a 28% CAGR over 3 years, yet earnings have been shrinking

By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, the Sumitomo Mitsui Trust Holdings, Inc. (TSE:8309) share price is up 87% in the last three years, clearly besting the market return of around 38% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 46% in the last year, including dividends.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

See our latest analysis for Sumitomo Mitsui Trust Holdings

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.

Over the last three years, Sumitomo Mitsui Trust Holdings failed to grow earnings per share, which fell 17% (annualized).

Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Given this situation, it makes sense to look at other metrics too.

Do you think that shareholders are buying for the 2.6% per annum revenue growth trend? We don't. So truth be told we can't see an easy explanation for the share price action, but perhaps you can...

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

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. You can see what analysts are predicting for Sumitomo Mitsui Trust Holdings in this interactive graph of future profit estimates.

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 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. 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 Mitsui Trust Holdings the TSR over the last 3 years was 112%, 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 Mitsui Trust Holdings shareholders have received a total shareholder return of 46% over one year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 18%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Sumitomo Mitsui Trust Holdings better, we need to consider many other factors. Take risks, for example - Sumitomo Mitsui Trust Holdings has 1 warning sign we think you should be aware of.

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.