Wellnet's (TSE:2428) three-year earnings growth trails the favorable shareholder returns

By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. Just take a look at Wellnet Corporation (TSE:2428), which is up 40%, over three years, soundly beating the market return of 22% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 21%, including dividends.

The past week has proven to be lucrative for Wellnet investors, so let's see if fundamentals drove the company's three-year performance.

View our latest analysis for Wellnet

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 three years of share price growth, Wellnet achieved compound earnings per share growth of 25% per year. This EPS growth is higher than the 12% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat.

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

Dive deeper into Wellnet's key metrics by checking this interactive graph of Wellnet's earnings, revenue and cash flow.

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. As it happens, Wellnet's TSR for the last 3 years was 53%, 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

It's nice to see that Wellnet shareholders have received a total shareholder return of 21% 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 0.7% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Wellnet better, we need to consider many other factors. Even so, be aware that Wellnet is showing 2 warning signs in our investment analysis , you should know about...

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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.