If You Had Bought Kyoritsu Electric (TYO:6874) Shares Five Years Ago You'd Have Earned 44% Returns

By
Simply Wall St
Published
May 05, 2021
JASDAQ:6874
Source: Shutterstock

If you want to compound wealth in the stock market, you can do so by buying an index fund. But you can do a lot better than that by buying good quality businesses for attractive prices. For example, the Kyoritsu Electric Corporation (TYO:6874) share price is 44% higher than it was five years ago, which is more than the market average. Zooming in, the stock is up a respectable 14% in the last year.

See our latest analysis for Kyoritsu Electric

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Over half a decade, Kyoritsu Electric managed to grow its earnings per share at 13% a year. This EPS growth is higher than the 8% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company. This cautious sentiment is reflected in its (fairly low) P/E ratio of 7.83.

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

earnings-per-share-growth
JASDAQ:6874 Earnings Per Share Growth May 5th 2021

This free interactive report on Kyoritsu Electric's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Kyoritsu Electric's TSR for the last 5 years was 62%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Kyoritsu Electric shareholders are up 17% for the year (even including dividends). But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 10% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. It's always interesting to track share price performance over the longer term. But to understand Kyoritsu Electric better, we need to consider many other factors. For example, we've discovered 1 warning sign for Kyoritsu Electric that you should be aware of before investing here.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on JP exchanges.

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