Hodogaya Chemical's (TSE:4112) earnings have declined over five years, contributing to shareholders 19% loss

While not a mind-blowing move, it is good to see that the Hodogaya Chemical Co., Ltd. (TSE:4112) share price has gained 24% in the last three months. But over the last half decade, the stock has not performed well. After all, the share price is down 26% in that time, significantly under-performing the market.

Although the past week has been more reassuring for shareholders, they're still in the red over the last five years, so let's see if the underlying business has been responsible for the decline.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

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 five years over which the share price declined, Hodogaya Chemical's earnings per share (EPS) dropped by 4.6% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 6% per year, over the period. This implies that the market was previously too optimistic about the stock.

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 Hodogaya Chemical's key metrics by checking this interactive graph of Hodogaya Chemical'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). 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. As it happens, Hodogaya Chemical's TSR for the last 5 years was -19%, 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

Investors in Hodogaya Chemical had a tough year, with a total loss of 19% (including dividends), against a market gain of about 20%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 4% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Even so, be aware that Hodogaya Chemical is showing 2 warning signs in our investment analysis , you should know about...

Of course Hodogaya Chemical may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Japanese exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.