TokyotokeibaLtd's (TSE:9672) five-year total shareholder returns outpace the underlying earnings growth

If you buy and hold a stock for many years, you'd hope to be making a profit. Better yet, you'd like to see the share price move up more than the market average. Unfortunately for shareholders, while the Tokyotokeiba Co.,Ltd. (TSE:9672) share price is up 29% in the last five years, that's less than the market return. Unfortunately the share price is down 5.5% in the last year.

Since the long term performance has been good but there's been a recent pullback of 7.7%, let's check if the fundamentals match the share price.

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While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

During five years of share price growth, TokyotokeibaLtd achieved compound earnings per share (EPS) growth of 15% per year. The EPS growth is more impressive than the yearly share price gain of 5% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. The reasonably low P/E ratio of 11.40 also suggests market apprehension.

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

We know that TokyotokeibaLtd 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. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of TokyotokeibaLtd, it has a TSR of 42% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Although it hurts that TokyotokeibaLtd returned a loss of 2.9% in the last twelve months, the broader market was actually worse, returning a loss of 3.9%. Longer term investors wouldn't be so upset, since they would have made 7%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. Is TokyotokeibaLtd cheap compared to other companies? These 3 valuation measures might help you decide.

Of course TokyotokeibaLtd 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.