Those who invested in LY (TSE:4689) a year ago are up 37%

Passive investing in index funds can generate returns that roughly match the overall market. But if you pick the right individual stocks, you could make more than that. For example, the LY Corporation (TSE:4689) share price is up 35% in the last 1 year, clearly besting the market decline of around 0.7% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! The longer term returns have not been as good, with the stock price only 25% higher than it was three years ago.

So let's assess the underlying fundamentals over the last 1 year and see if they've moved in lock-step with shareholder returns.

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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.

LY was able to grow EPS by 39% in the last twelve months. This EPS growth is reasonably close to the 35% increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. We don't think its coincidental that the share price is growing at a similar rate to the earnings per share.

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

We know that LY has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

A Different Perspective

It's nice to see that LY shareholders have received a total shareholder return of 37% over the last year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 4%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Before forming an opinion on LY you might want to consider these 3 valuation metrics.

We will like LY better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.