Earnings are growing at NittokuLtd (TSE:6145) but shareholders still don't like its prospects

If you love investing in stocks you're bound to buy some losers. But the last three years have been particularly tough on longer term Nittoku Co.,Ltd. (TSE:6145) shareholders. Regrettably, they have had to cope with a 65% drop in the share price over that period. And more recent buyers are having a tough time too, with a drop of 44% in the last year. Shareholders have had an even rougher run lately, with the share price down 31% in the last 90 days.

After losing 26% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

View our latest analysis for NittokuLtd

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Although the share price is down over three years, NittokuLtd actually managed to grow EPS by 30% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

We note that, in three years, revenue has actually grown at a 8.9% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating NittokuLtd further; while we may be missing something on this analysis, there might also be an opportunity.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

It is of course excellent to see how NittokuLtd has grown profits over the years, but the future is more important for shareholders. This free interactive report on NittokuLtd's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

NittokuLtd shareholders are down 44% for the year (even including dividends), but the market itself is up 12%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 7% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 2 warning signs for NittokuLtd you should be aware of.

Of course NittokuLtd 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 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com