Investors in Kajima (TSE:1812) have seen stellar returns of 114% over the past three years

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 Kajima Corporation (TSE:1812) share price is up 91% in the last three years, clearly besting the market return of around 38% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 2.8%, including dividends.

Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

View our latest analysis for Kajima

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.

Kajima was able to grow its EPS at 3.6% per year over three years, sending the share price higher. In comparison, the 24% per year gain in the share price outpaces the EPS growth. So it's fair to assume the market has a higher opinion of the business than it did three years ago. It is quite common to see investors become enamoured with a business, after a few years of solid progress.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

Dive deeper into Kajima's key metrics by checking this interactive graph of Kajima's earnings, revenue and cash flow.

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Kajima's TSR for the last 3 years was 114%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Kajima provided a TSR of 2.8% over the last twelve months. But that was short of the market average. On the bright side, the longer term returns (running at about 18% 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. It's always interesting to track share price performance over the longer term. But to understand Kajima better, we need to consider many other factors. Take risks, for example - Kajima has 2 warning signs (and 1 which is concerning) we think you should know about.

But note: Kajima may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.