Optimism for Acom (TSE:8572) has grown this past week, despite three-year decline in earnings

Low-cost index funds make it easy to achieve average market returns. But in any diversified portfolio of stocks, you'll see some that fall short of the average. That's what has happened with the Acom Co., Ltd. (TSE:8572) share price. It's up 18% over three years, but that is below the market return. Disappointingly, the share price is down 1.8% in the last year.

On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.

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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 the three years of share price growth, Acom actually saw its earnings per share (EPS) drop 0.5% per year.

Based on these numbers, we think that the decline in earnings per share may not be a good representation of how the business has changed over the years. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

It may well be that Acom revenue growth rate of 6.3% over three years has convinced shareholders to believe in a brighter future. If the company is being managed for the long term good, today's shareholders might be right to hold on.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We know that Acom has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Acom stock, you should check out this free report showing analyst profit forecasts.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Acom the TSR over the last 3 years was 31%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that Acom shareholders have received a total shareholder return of 1.8% over one year. That's including the dividend. That's better than the annualised return of 0.9% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. To that end, you should learn about the 2 warning signs we've spotted with Acom (including 1 which is potentially serious) .

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.