AlphaPolis (TSE:9467) stock performs better than its underlying earnings growth over last three years

One simple way to benefit from the stock market is to buy an index fund. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, AlphaPolis Co., Ltd. (TSE:9467) shareholders have seen the share price rise 97% over three years, well in excess of the market return (57%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 75%, including dividends.

The past week has proven to be lucrative for AlphaPolis investors, so let's see if fundamentals drove the company's three-year performance.

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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.

AlphaPolis was able to grow its EPS at 12% per year over three years, sending the share price higher. In comparison, the 25% per year gain in the share price outpaces the EPS growth. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It's not unusual to see the market 're-rate' a stock, after a few years of growth.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that AlphaPolis 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 good to see that AlphaPolis has rewarded shareholders with a total shareholder return of 75% in the last twelve months. And that does include the dividend. That gain is better than the annual TSR over five years, which is 8%. Therefore it seems like sentiment around the company has been positive lately. 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 AlphaPolis better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with AlphaPolis .

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.