PILLAR (TSE:6490) stock performs better than its underlying earnings growth over last five years

PILLAR Corporation (TSE:6490) shareholders might be concerned after seeing the share price drop 20% in the last quarter. But in stark contrast, the returns over the last half decade have impressed. We think most investors would be happy with the 158% return, over that period. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. The more important question is whether the stock is too cheap or too expensive today. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 45% decline over the last twelve months.

Since the stock has added JP¥7.2b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

We've discovered 1 warning sign about PILLAR. View them for free.

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.

Over half a decade, PILLAR managed to grow its earnings per share at 30% a year. This EPS growth is higher than the 21% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 8.38.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

Dive deeper into PILLAR's key metrics by checking this interactive graph of PILLAR's earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, PILLAR's TSR for the last 5 years was 207%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in PILLAR had a tough year, with a total loss of 43% (including dividends), against a market gain of about 0.4%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 25% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 1 warning sign we've spotted with PILLAR .

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.