Did Fukuda Denshi's (TYO:6960) Share Price Deserve to Gain 39%?

When you buy and hold a stock for the long term, you definitely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. Unfortunately for shareholders, while the Fukuda Denshi Co., Ltd. (TYO:6960) share price is up 39% in the last five years, that's less than the market return. However, more recent buyers should be happy with the increase of 24% over the last year.

See our latest analysis for Fukuda Denshi

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 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).

Over half a decade, Fukuda Denshi managed to grow its earnings per share at 7.1% a year. That makes the EPS growth particularly close to the yearly share price growth of 7%. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. In fact, the share price seems to largely reflect the EPS growth.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Fukuda Denshi has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Fukuda Denshi the TSR over the last 5 years was 57%, 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

Fukuda Denshi shareholders have received returns of 27% over twelve months (even including dividends), which isn't far from the general market return. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 9%. Even if the share price growth slows down from here, there's a good chance that this is business worth watching in the long term. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Fukuda Denshi (of which 1 is significant!) you should know about.

We will like Fukuda Denshi better if we see some big insider buys. While we wait, check out this free list of growing companies 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 JP exchanges.

If you decide to trade Fukuda Denshi, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.