Nitto Boseki's (TSE:3110) three-year total shareholder returns outpace the underlying earnings growth

It might be of some concern to shareholders to see the Nitto Boseki Co., Ltd. (TSE:3110) share price down 27% in the last month. But don't let that distract from the very nice return generated over three years. To wit, the share price did better than an index fund, climbing 63% during that period.

In light of the stock dropping 6.9% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive three-year return.

See our latest analysis for Nitto Boseki

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 three years of share price growth, Nitto Boseki achieved compound earnings per share growth of 33% per year. This EPS growth is higher than the 18% average annual increase in the share price. So it seems investors have become more cautious about the company, over time.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that Nitto Boseki has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Nitto Boseki stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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 Nitto Boseki the TSR over the last 3 years was 71%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Investors in Nitto Boseki had a tough year, with a total loss of 12% (including dividends), against a market gain of about 3.6%. 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 5% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Nitto Boseki better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Nitto Boseki you should be aware of.

But note: Nitto Boseki 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.