Earnings growth of 0.6% over 5 years hasn't been enough to translate into positive returns for Kamakura Shinsho (TSE:6184) shareholders

Long term investing works well, but it doesn't always work for each individual stock. We really hate to see fellow investors lose their hard-earned money. Anyone who held Kamakura Shinsho, Ltd. (TSE:6184) for five years would be nursing their metaphorical wounds since the share price dropped 75% in that time. And some of the more recent buyers are probably worried, too, with the stock falling 44% in the last year. The falls have accelerated recently, with the share price down 30% in the last three months.

With the stock having lost 11% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

See our latest analysis for Kamakura Shinsho

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.

While the share price declined over five years, Kamakura Shinsho actually managed to increase EPS by an average of 3.3% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Alternatively, growth expectations may have been unreasonable in the past.

Based on these numbers, we'd venture that the market may have been over-optimistic about forecast growth, half a decade ago. Looking to other metrics might better explain the share price change.

We don't think that the 1.0% is big factor in the share price, since it's quite small, as dividends go. In contrast to the share price, revenue has actually increased by 16% a year in the five year period. So it seems one might have to take closer look at the fundamentals to understand why the share price languishes. After all, there may be an opportunity.

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

Take a more thorough look at Kamakura Shinsho's financial health with this free report on its balance sheet.

A Different Perspective

Kamakura Shinsho shareholders are down 44% for the year (even including dividends), but the market itself is up 9.6%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 12% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. For instance, we've identified 2 warning signs for Kamakura Shinsho that you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.