While shareholders of Tomoegawa (TSE:3878) are in the red over the last year, underlying earnings have actually grown

Tomoegawa Corporation (TSE:3878) shareholders should be happy to see the share price up 22% in the last week. But that is minimal compensation for the share price under-performance over the last year. In fact, the price has declined 23% in a year, falling short of the returns you could get by investing in an index fund.

The recent uptick of 22% could be a positive sign of things to come, so let's take a look at historical fundamentals.

View our latest analysis for Tomoegawa

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 the unfortunate twelve months during which the Tomoegawa share price fell, it actually saw its earnings per share (EPS) improve by 60%. Of course, the situation might betray previous over-optimism about growth.

It's fair to say that the share price does not seem to be reflecting the EPS growth. So it's easy to justify a look at some other metrics.

Given the yield is quite low, at 1.8%, we doubt the dividend can shed much light on the share price. Tomoegawa managed to grow revenue over the last year, which is usually a real positive. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

Take a more thorough look at Tomoegawa's financial health with this free report on its balance sheet.

A Different Perspective

While the broader market gained around 9.6% in the last year, Tomoegawa shareholders lost 22% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.6% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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 3 warning signs for Tomoegawa (1 makes us a bit uncomfortable) that you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.