Earnings are growing at Mitsubishi Chemical Group (TSE:4188) but shareholders still don't like its prospects

The simplest way to benefit from a rising market is to buy an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in Mitsubishi Chemical Group Corporation (TSE:4188) have tasted that bitter downside in the last year, as the share price dropped 17%. That's disappointing when you consider the market returned 13%. At least the damage isn't so bad if you look at the last three years, since the stock is down 6.3% in that time. Shareholders have had an even rougher run lately, with the share price down 13% in the last 90 days. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

Check out our latest analysis for Mitsubishi Chemical Group

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 the unfortunate twelve months during which the Mitsubishi Chemical Group share price fell, it actually saw its earnings per share (EPS) improve by 4.4%. Of course, the situation might betray previous over-optimism about growth.

It seems quite likely that the market was expecting higher growth from the stock. But other metrics might shed some light on why the share price is down.

The fact that the dividend has fallen is probably weighing on the share price, as it implies some form of business stress. The uninspiring top line, which was down 0.8% year on year, might also leave investors unenthused. So arguably these factors could justify the share price action.

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

Mitsubishi Chemical Group is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Mitsubishi Chemical Group in this interactive graph of future profit estimates.

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 Mitsubishi Chemical Group, it has a TSR of -14% for the last 1 year. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

Mitsubishi Chemical Group shareholders are down 14% for the year (even including dividends), but the market itself is up 13%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 3% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. To that end, you should be aware of the 2 warning signs we've spotted with Mitsubishi Chemical Group .

Of course Mitsubishi Chemical Group 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.

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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.