Mitsubishi Electric's (TSE:6503) three-year total shareholder returns outpace the underlying earnings growth

By buying an index fund, you can roughly match the market return with ease. But if you choose individual stocks with prowess, you can make superior returns. For example, Mitsubishi Electric Corporation (TSE:6503) shareholders have seen the share price rise 84% over three years, well in excess of the market return (40%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 21%, including dividends.

Since the long term performance has been good but there's been a recent pullback of 3.7%, let's check if the fundamentals match the share price.

View our latest analysis for Mitsubishi Electric

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Mitsubishi Electric was able to grow its EPS at 5.4% per year over three years, sending the share price higher. This EPS growth is lower than the 22% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did three years ago. It's not unusual to see the market 're-rate' a stock, after a few years of growth.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that Mitsubishi Electric 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?

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Mitsubishi Electric's TSR for the last 3 years was 98%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that Mitsubishi Electric shareholders have received a total shareholder return of 21% over one year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 12%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. Before deciding if you like the current share price, check how Mitsubishi Electric scores on these 3 valuation metrics.

Of course Mitsubishi Electric 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.