The five-year shareholder returns and company earnings persist lower as Riso Kyoiku (TSE:4714) stock falls a further 11% in past week

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But even the best stock picker will only win with some selections. So we wouldn't blame long term Riso Kyoiku Co., Ltd. (TSE:4714) shareholders for doubting their decision to hold, with the stock down 58% over a half decade. Shareholders have had an even rougher run lately, with the share price down 21% in the last 90 days. However, one could argue that the price has been influenced by the general market, which is down 9.9% in the same timeframe.

If the past week is anything to go by, investor sentiment for Riso Kyoiku isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

See our latest analysis for Riso Kyoiku

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.

Looking back five years, both Riso Kyoiku's share price and EPS declined; the latter at a rate of 0.9% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 16% per year, over the period. This implies that the market was previously too optimistic about the stock.

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

We know that Riso Kyoiku 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?

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Riso Kyoiku the TSR over the last 5 years was -49%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Investors in Riso Kyoiku had a tough year, with a total loss of 11% (including dividends), against a market gain of about 7.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 8% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. 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 example, we've discovered 2 warning signs for Riso Kyoiku that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com