Kawasaki Heavy Industries (TSE:7012) sheds 9.6% this week, as yearly returns fall more in line with earnings growth

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Kawasaki Heavy Industries, Ltd. (TSE:7012) share price has soared 138% in the last three years. Most would be happy with that. Unfortunately, though, the stock has dropped 9.6% over a week. But this could be related to the soft market, with stocks selling off around 2.6% in the last week.

Since the long term performance has been good but there's been a recent pullback of 9.6%, let's check if the fundamentals match the share price.

See our latest analysis for Kawasaki Heavy Industries

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Kawasaki Heavy Industries was able to grow its EPS at 139% per year over three years, sending the share price higher. The average annual share price increase of 34% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that Kawasaki Heavy Industries has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Kawasaki Heavy Industries stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Kawasaki Heavy Industries' TSR for the last 3 years was 155%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Kawasaki Heavy Industries shareholders have received a total shareholder return of 74% over the last year. That's including the dividend. That gain is better than the annual TSR over five years, which is 19%. 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. It's always interesting to track share price performance over the longer term. But to understand Kawasaki Heavy Industries better, we need to consider many other factors. Case in point: We've spotted 4 warning signs for Kawasaki Heavy Industries you should be aware of, and 1 of them shouldn't be ignored.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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.