AGC (TSE:5201) shareholder returns have been impressive, earning 124% in 5 years

When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Furthermore, you'd generally like to see the share price rise faster than the market. But AGC Inc. (TSE:5201) has fallen short of that second goal, with a share price rise of 83% over five years, which is below the market return. However, if you include the dividends then the return is market beating. The last year has been disappointing, with the stock price down 12% in that time.

Since the stock has added JP¥47b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Check out our latest analysis for AGC

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

AGC's earnings per share are down 40% per year, despite strong share price performance over five years. This was, in part, due to extraordinary items impacting earning in the last twelve months.

This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

In fact, the dividend has increased over time, which is a positive. Maybe dividend investors have helped support the share price. We'd posit that the revenue growth over the last five years, of 8.8% per year, would encourage people to invest.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

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. We note that for AGC the TSR over the last 5 years was 124%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

While the broader market gained around 2.6% in the last year, AGC shareholders lost 8.2% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 18%, each year, over five years. 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. It's always interesting to track share price performance over the longer term. But to understand AGC better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for AGC you should know about.

But note: AGC 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.