Investors five-year losses continue as Shimano (TSE:7309) dips a further 5.4% this week, earnings continue to decline

Ideally, your overall portfolio should beat the market average. But the main game is to find enough winners to more than offset the losers At this point some shareholders may be questioning their investment in Shimano Inc. (TSE:7309), since the last five years saw the share price fall 39%. We also note that the stock has performed poorly over the last year, with the share price down 29%. Unfortunately the share price momentum is still quite negative, with prices down 15% in thirty days. Importantly, this could be a market reaction to the recently released financial results. You can check out the latest numbers in our company report.

With the stock having lost 5.4% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

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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).

Looking back five years, both Shimano's share price and EPS declined; the latter at a rate of 0.5% per year. This reduction in EPS is less than the 9% annual reduction in the share price. This implies that the market was previously too optimistic about the stock.

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

We know that Shimano has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Shimano the TSR over the last 5 years was -35%, 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

Shimano shareholders are down 27% for the year (even including dividends), but the market itself is up 25%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 6% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Shimano better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Shimano , and understanding them should be part of your investment process.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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.