The total return for Sanko Gosei (TSE:7888) investors has risen faster than earnings growth over the last five years

Sanko Gosei Ltd. (TSE:7888) shareholders might be concerned after seeing the share price drop 12% in the last week. But in stark contrast, the returns over the last half decade have impressed. We think most investors would be happy with the 159% return, over that period. To some, the recent pullback wouldn't be surprising after such a fast rise. Only time will tell if there is still too much optimism currently reflected in the share price.

While the stock has fallen 12% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

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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.

Over half a decade, Sanko Gosei managed to grow its earnings per share at 30% a year. This EPS growth is higher than the 21% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company. This cautious sentiment is reflected in its (fairly low) P/E ratio of 5.82.

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

We know that Sanko Gosei 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 Sanko Gosei stock, you should check out this FREE detailed report on its balance sheet .

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Sanko Gosei, it has a TSR of 203% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

While the broader market lost about 0.3% in the twelve months, Sanko Gosei shareholders did even worse, losing 13% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 25% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Sanko Gosei better, we need to consider many other factors. For example, we've discovered 1 warning sign for Sanko Gosei that you should be aware of before investing here.

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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.