Ezaki Glico (TSE:2206) shareholders notch a 16% CAGR over 3 years, yet earnings have been shrinking

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 Ezaki Glico Co., Ltd. (TSE:2206) share price. It's up 45% over three years, but that is below the market return. Some buyers are laughing, though, with an increase of 21% in the last year.

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

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There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the three years of share price growth, Ezaki Glico actually saw its earnings per share (EPS) drop 7.1% per year.

So we doubt that the market is looking to EPS for its main judge of the company's value. 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.

The modest 2.0% dividend yield is unlikely to be propping up the share price. Do you think that shareholders are buying for the 3.0% per annum revenue growth trend? We don't. While we don't have an obvious theory to explain the share price rise, a closer look at the data might be enlightening.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

If you are thinking of buying or selling Ezaki Glico stock, you should check out this FREE detailed report on its balance sheet.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Ezaki Glico the TSR over the last 3 years was 54%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Ezaki Glico has rewarded shareholders with a total shareholder return of 23% in the last twelve months. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 4% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Take risks, for example - Ezaki Glico has 2 warning signs we think you should be aware of.

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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.