Earnings growth outpaced the decent 40% return delivered to Nippon Densetsu Kogyo (TSE:1950) shareholders over the last year

There's no doubt that investing in the stock market is a truly brilliant way to build wealth. But not every stock you buy will perform as well as the overall market. Over the last year the Nippon Densetsu Kogyo Co., Ltd. (TSE:1950) share price is up 37%, but that's less than the broader market return. The longer term returns have not been as good, with the stock price only 6.0% higher than it was three years ago.

On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.

Check out our latest analysis for Nippon Densetsu Kogyo

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 last year Nippon Densetsu Kogyo grew its earnings per share (EPS) by 88%. This EPS growth is significantly higher than the 37% increase in the share price. So it seems like the market has cooled on Nippon Densetsu Kogyo, despite the growth. Interesting.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that Nippon Densetsu Kogyo has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

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. As it happens, Nippon Densetsu Kogyo's TSR for the last 1 year was 40%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Nippon Densetsu Kogyo provided a TSR of 40% over the year (including dividends). That's fairly close to the broader market return. The silver lining is that the share price is up in the short term, which flies in the face of the annualised loss of 0.1% over the last five years. We're pretty skeptical of turnaround stories, but it's good to see the recent share price recovery. 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. For example, we've discovered 1 warning sign for Nippon Densetsu Kogyo that you should be aware of before investing here.

But note: Nippon Densetsu Kogyo 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.