Did You Participate In Any Of Soken Chemical & Engineering's (TYO:4972) Fantastic 117% Return ?

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, long term Soken Chemical & Engineering Co., Ltd. (TYO:4972) shareholders have enjoyed a 82% share price rise over the last half decade, well in excess of the market return of around 20% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 35% in the last year , including dividends .

See our latest analysis for Soken Chemical & Engineering

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 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 five years of share price growth, Soken Chemical & Engineering achieved compound earnings per share (EPS) growth of 29% per year. This EPS growth is higher than the 13% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company. The reasonably low P/E ratio of 7.05 also suggests market apprehension.

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

We know that Soken Chemical & Engineering 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?

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Soken Chemical & Engineering the TSR over the last 5 years was 117%, 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

It's nice to see that Soken Chemical & Engineering shareholders have received a total shareholder return of 35% over the last year. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 17% 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Soken Chemical & Engineering , and understanding them should be part of your investment process.

We will like Soken Chemical & Engineering 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.

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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.
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