Optimism for SAKURA Internet (TSE:3778) has grown this past week, despite three-year decline in earnings

SAKURA Internet Inc. (TSE:3778) shareholders might understandably be very concerned that the share price has dropped 48% in the last quarter. But that doesn't displace its brilliant performance over three years. The longer term view reveals that the share price is up 403% in that period. So you might argue that the recent reduction in the share price is unremarkable in light of the longer term performance. The thing to consider is whether there is still too much elation around the company's prospects.

Since the stock has added JP¥18b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for SAKURA Internet

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Over the last three years, SAKURA Internet failed to grow earnings per share, which fell 6.2% (annualized).

This means it's unlikely the market is judging the company based on earnings growth. Given this situation, it makes sense to look at other metrics too.

The modest 0.1% dividend yield is unlikely to be propping up the share price. We severely doubt anyone is particularly impressed with the modest 1.6% three-year revenue growth rate. So truth be told we can't see an easy explanation for the share price action, but perhaps you can...

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

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

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of SAKURA Internet, it has a TSR of 409% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that SAKURA Internet has rewarded shareholders with a total shareholder return of 164% in the last twelve months. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 38% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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 risks, for instance. Every company has them, and we've spotted 2 warning signs for SAKURA Internet you should know about.

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.