Japan Post Insurance's (TSE:7181) earnings growth rate lags the 14% CAGR delivered to shareholders

Japan Post Insurance Co., Ltd. (TSE:7181) shareholders might be concerned after seeing the share price drop 12% in the last quarter. On the bright side the share price is up over the last half decade. In that time, it is up 55%, which isn't bad, but is below the market return of 72%.

In light of the stock dropping 5.5% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.

Check out our latest analysis for Japan Post Insurance

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 five years of share price growth, Japan Post Insurance achieved compound earnings per share (EPS) growth of 2.3% per year. This EPS growth is slower than the share price growth of 9% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

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

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Japan Post Insurance's TSR for the last 5 years was 90%, 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

Japan Post Insurance shareholders gained a total return of 3.0% during the year. Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 14% 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. 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. Case in point: We've spotted 2 warning signs for Japan Post Insurance you should be aware of, and 1 of them is concerning.

But note: Japan Post Insurance may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.