The total return for Token (TSE:1766) investors has risen faster than earnings growth over the last five years

If you want to compound wealth in the stock market, you can do so by buying an index fund. But in our experience, buying the right stocks can give your wealth a significant boost. For example, the Token Corporation (TSE:1766) share price is 57% higher than it was five years ago, which is more than the market average. We're also happy to report the stock is up a healthy 29% in the last year.

Since the long term performance has been good but there's been a recent pullback of 6.9%, let's check if the fundamentals match the share price.

See our latest analysis for Token

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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Over half a decade, Token managed to grow its earnings per share at 6.7% a year. This EPS growth is lower than the 9% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Token has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

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. In the case of Token, it has a TSR of 80% 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

It's nice to see that Token shareholders have received a total shareholder return of 32% over the last year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 12% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Is Token cheap compared to other companies? These 3 valuation measures might help you decide.

But note: Token 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.