Pulling back 10% this week, Amita HoldingsLtd's TSE:2195) three-year decline in earnings may be coming into investors focus

Amita Holdings Co.,Ltd. (TSE:2195) shareholders might understandably be very concerned that the share price has dropped 35% in the last quarter. But that doesn't change the fact that the returns over the last three years have been very strong. Indeed, the share price is up a very strong 111% in that time. To some, the recent share price pullback wouldn't be surprising after such a good run. Only time will tell if there is still too much optimism currently reflected in the share price.

Since the long term performance has been good but there's been a recent pullback of 10%, let's check if the fundamentals match the share price.

Check out our latest analysis for Amita HoldingsLtd

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 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).

Over the last three years, Amita HoldingsLtd failed to grow earnings per share, which fell 2.7% (annualized).

Companies are not always focussed on EPS growth in the short term, and looking at how the share price has reacted, we don't think EPS is the most important metric for Amita HoldingsLtd at the moment. Therefore, it makes sense to look into other metrics.

The modest 1.0% dividend yield is unlikely to be propping up the share price. The revenue drop of 4.0% is as underwhelming as some politicians. The only thing that's clear is there is low correlation between Amita HoldingsLtd's share price and its historic fundamental data. Further research may be required!

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

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?

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Amita HoldingsLtd the TSR over the last 3 years was 114%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in Amita HoldingsLtd had a tough year, with a total loss of 48% (including dividends), against a market gain of about 9.6%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 16% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 1 warning sign for Amita HoldingsLtd that you should be aware of.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.