Nippon Paper Industries (TSE:3863) lifts 6.4% this week, taking three-year gains to 47%

Buying a low-cost index fund will get you the average market return. But if you invest in individual stocks, some are likely to underperform. That's what has happened with the Nippon Paper Industries Co., Ltd. (TSE:3863) share price. It's up 44% over three years, but that is below the market return. On the other hand, the more recent gain of 41% over a year is certainly pleasing.

Since it's been a strong week for Nippon Paper Industries shareholders, let's have a look at trend of the longer term fundamentals.

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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 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 three years of share price growth, Nippon Paper Industries moved from a loss to profitability. So we would expect a higher share price over the period.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that Nippon Paper Industries has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Nippon Paper Industries' balance sheet strength is a great place to start, if you want to investigate the stock further.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Nippon Paper Industries' TSR for the last 3 years was 47%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that Nippon Paper Industries shareholders have received a total shareholder return of 42% over one year. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 0.6% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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 Nippon Paper Industries you should be aware of, and 1 of them is a bit unpleasant.

We will like Nippon Paper Industries better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) 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 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.