Despite lower earnings than three years ago, Morinaga&Co (TSE:2201) investors are up 53% since then

Investors can buy low cost index fund if they want to receive the average market return. But if you invest in individual stocks, some are likely to underperform. That's what has happened with the Morinaga&Co., Ltd. (TSE:2201) share price. It's up 41% over three years, but that is below the market return. Disappointingly, the share price is down 1.1% in the last year.

While this past week has detracted from the company's three-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.

Over the last three years, Morinaga&Co failed to grow earnings per share, which fell 6.9% (annualized).

Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Therefore, we think it's worth considering other metrics as well.

It could be that the revenue growth of 8.2% per year is viewed as evidence that Morinaga&Co is growing. If the company is being managed for the long term good, today's shareholders might be right to hold on.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We know that Morinaga&Co has improved its bottom line lately, but what does the future have in store? So we recommend checking out this free report showing consensus forecasts

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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Morinaga&Co the TSR over the last 3 years was 53%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Morinaga&Co shareholders are up 2.5% for the year (even including dividends). Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 8% a year, over half a decade) look better. Maybe the share price is just taking a breather while the business executes on its growth strategy. It's always interesting to track share price performance over the longer term. But to understand Morinaga&Co better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Morinaga&Co you should be aware of.

We will like Morinaga&Co better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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.