Toyo Denki Seizo K.K's (TSE:6505) one-year earnings growth trails the 37% YoY shareholder returns

If you want to compound wealth in the stock market, you can do so by buying an index fund. But investors can boost returns by picking market-beating companies to own shares in. To wit, the Toyo Denki Seizo K.K. (TSE:6505) share price is 33% higher than it was a year ago, much better than the market return of around 26% (not including dividends) in the same period. That's a solid performance by our standards! However, the stock hasn't done so well in the longer term, with the stock only up 7.8% in three years.

Since it's been a strong week for Toyo Denki Seizo K.K shareholders, let's have a look at trend of the longer term fundamentals.

View our latest analysis for Toyo Denki Seizo K.K

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 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 the last year Toyo Denki Seizo K.K grew its earnings per share (EPS) by 8.4%. This EPS growth is significantly lower than the 33% increase in the share price. So it's fair to assume the market has a higher opinion of the business than it a year ago.

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

Dive deeper into Toyo Denki Seizo K.K's key metrics by checking this interactive graph of Toyo Denki Seizo K.K's earnings, revenue and cash flow.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Toyo Denki Seizo K.K the TSR over the last 1 year was 37%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that Toyo Denki Seizo K.K shareholders have received a total shareholder return of 37% over one year. That's including the dividend. Notably the five-year annualised TSR loss of 1.6% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the 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. Take risks, for example - Toyo Denki Seizo K.K has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

Of course Toyo Denki Seizo K.K 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