Did Muto Seiko's (TYO:7927) Share Price Deserve to Gain 79%?

When we invest, we're generally looking for stocks that outperform the market average. Buying under-rated businesses is one path to excess returns. For example, the Muto Seiko Co. (TYO:7927) share price is up 79% in the last 5 years, clearly besting the market return of around 50% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 28% in the last year , including dividends .

Check out our latest analysis for Muto Seiko

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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the last half decade, Muto Seiko became profitable. That would generally be considered a positive, so we'd expect the share price to be up.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

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

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Muto Seiko, it has a TSR of 99% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that Muto Seiko shareholders have received a total shareholder return of 28% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 15%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. For instance, we've identified 4 warning signs for Muto Seiko that you should be aware of.

We will like Muto Seiko 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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