Earnings are growing at QB Net HoldingsLtd (TSE:6571) but shareholders still don't like its prospects

QB Net Holdings Co.,Ltd. (TSE:6571) shareholders should be happy to see the share price up 14% in the last quarter. But over the last half decade, the stock has not performed well. You would have done a lot better buying an index fund, since the stock has dropped 44% in that half decade.

Since QB Net HoldingsLtd has shed JP¥2.4b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for QB Net HoldingsLtd

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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, QB Net HoldingsLtd moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics might give us a better handle on how its value is changing over time.

The modest 1.7% dividend yield is unlikely to be guiding the market view of the stock. Revenue is actually up 3.4% over the time period. So it seems one might have to take closer look at the fundamentals to understand why the share price languishes. After all, there may be an opportunity.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

It is of course excellent to see how QB Net HoldingsLtd has grown profits over the years, but the future is more important for shareholders. This free interactive report on QB Net HoldingsLtd's balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, QB Net HoldingsLtd's TSR for the last 5 years was -42%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Investors in QB Net HoldingsLtd had a tough year, with a total loss of 16% (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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 7% per year over five years. 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. Before forming an opinion on QB Net HoldingsLtd you might want to consider these 3 valuation metrics.

Of course QB Net HoldingsLtd 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 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