Kasumigaseki CapitalLtd's (TSE:3498) five-year total shareholder returns outpace the underlying earnings growth

It hasn't been the best quarter for Kasumigaseki Capital Co.,Ltd. (TSE:3498) shareholders, since the share price has fallen 11% in that time. But that does not change the realty that the stock's performance has been terrific, over five years. In fact, during that period, the share price climbed 781%. Impressive! So it might be that some shareholders are taking profits after good performance. But the real question is whether the business fundamentals can improve over the long term. We love happy stories like this one. The company should be really proud of that performance!

While this past week has detracted from the company's five-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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, Kasumigaseki CapitalLtd managed to grow its earnings per share at 117% a year. This EPS growth is higher than the 55% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Kasumigaseki CapitalLtd has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Kasumigaseki CapitalLtd, it has a TSR of 832% 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

Kasumigaseki CapitalLtd provided a TSR of 22% over the year (including dividends). That's fairly close to the broader market return. It has to be noted that the recent return falls short of the 56% shareholders have gained each year, over half a decade. More recently, the share price growth has slowed. But it has to be said the overall picture is one of good long term and short term performance. Arguably that makes Kasumigaseki CapitalLtd a stock worth watching. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Kasumigaseki CapitalLtd (at least 1 which is concerning) , and understanding them should be part of your investment process.

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.