The 5.8% return this week takes Kawasaki Heavy Industries' (TSE:7012) shareholders three-year gains to 170%

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But if you buy shares in a really great company, you can more than double your money. To wit, the Kawasaki Heavy Industries, Ltd. (TSE:7012) share price has flown 154% in the last three years. How nice for those who held the stock! On top of that, the share price is up 22% in about a quarter.

Since the stock has added JP¥56b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Kawasaki Heavy Industries

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During three years of share price growth, Kawasaki Heavy Industries moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here.

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

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). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Kawasaki Heavy Industries' TSR for the last 3 years was 170%, 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 Kawasaki Heavy Industries has rewarded shareholders with a total shareholder return of 69% in the last twelve months. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 20%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Even so, be aware that Kawasaki Heavy Industries is showing 4 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...

But note: Kawasaki Heavy Industries may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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