Nihon Seiko (TSE:5729) sheds 18% this week, as yearly returns fall more in line with earnings growth

Nihon Seiko Co., Ltd. (TSE:5729) shareholders might be concerned after seeing the share price drop 18% in the last month. But over five years returns have been remarkably great. Indeed, the share price is up a whopping 339% in that time. Arguably, the recent fall is to be expected after such a strong rise. Only time will tell if there is still too much optimism currently reflected in the share price.

Although Nihon Seiko has shed JP¥5.4b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

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There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Over half a decade, Nihon Seiko managed to grow its earnings per share at 63% a year. This EPS growth is higher than the 34% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company. The reasonably low P/E ratio of 5.91 also suggests market apprehension.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Dive deeper into Nihon Seiko's key metrics by checking this interactive graph of Nihon Seiko'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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Nihon Seiko, it has a TSR of 426% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Nihon Seiko has rewarded shareholders with a total shareholder return of 220% in the last twelve months. That's including the dividend. That's better than the annualised return of 39% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Nihon Seiko better, we need to consider many other factors. Take risks, for example - Nihon Seiko has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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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.