Nikkiso's (TSE:6376) 22% CAGR outpaced the company's earnings growth over the same three-year period

Low-cost index funds make it easy to achieve average market returns. But if you invest in individual stocks, some are likely to underperform. For example, the Nikkiso Co., Ltd. (TSE:6376) share price return of 65% over three years lags the market return in the same period. On the other hand, the more recent gain of 63% over a year is certainly pleasing.

Since the stock has added JP¥8.7b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.

Nikkiso was able to grow its EPS at 76% per year over three years, sending the share price higher. The average annual share price increase of 18% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock.

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

We know that Nikkiso has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Nikkiso's balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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, Nikkiso's TSR for the last 3 years was 80%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that Nikkiso has rewarded shareholders with a total shareholder return of 68% in the last twelve months. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 13% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Nikkiso better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Nikkiso you should be aware of.

Of course Nikkiso 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.

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

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.