Powdertech (TYO:5695) Has Compensated Shareholders With A Respectable 73% Return On Their Investment

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, long term Powdertech Co., Ltd. (TYO:5695) shareholders have enjoyed a 49% share price rise over the last half decade, well in excess of the market return of around 30% (not including dividends).

Check out our latest analysis for Powdertech

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 five years of share price growth, Powdertech actually saw its EPS drop 9.5% per year.

Essentially, it doesn't seem likely that investors are focused on EPS. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We are not particularly impressed by the annual compound revenue growth of 0.9% over five years. So it seems one might have to take closer look at earnings and revenue trends to see how they might influence the share price.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Powdertech's TSR for the last 5 years was 73%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

While the broader market gained around 10% in the last year, Powdertech shareholders lost 33% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 12%, each year, over five years. 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. 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. Case in point: We've spotted 2 warning signs for Powdertech you should be aware of.

Of course Powdertech 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 JP exchanges.

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This article by Simply Wall St is general in nature. 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.
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