Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Kyowakogyosyo Co.,Ltd. (TYO:5971) shareholders have had that experience, with the share price dropping 50% in three years, versus a market decline of about 6.8%.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the three years that the share price fell, KyowakogyosyoLtd's earnings per share (EPS) dropped by 27% each year. In comparison the 21% compound annual share price decline isn't as bad as the EPS drop-off. So the market may not be too worried about the EPS figure, at the moment -- or it may have previously priced some of the drop in.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
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 KyowakogyosyoLtd the TSR over the last 3 years was -47%, 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
While the broader market gained around 5.4% in the last year, KyowakogyosyoLtd shareholders lost 3.7% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 10% per year over half a decade. 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. 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. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for KyowakogyosyoLtd you should know about.
Of course KyowakogyosyoLtd may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on JP exchanges.
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This article by Simply Wall St is general in nature. 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.
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Kyowakogyosyo Co.,Ltd. manufactures and sells hexagon bolts, JIS hexagon socket head cap screws, bolts for construction machinery and internal combustion engines, cold-forged parts for automobiles, and special cold-/hot-forged parts in Japan and internationally.
Excellent balance sheet, good value and pays a dividend.
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