TDK's (TSE:6762) earnings growth rate lags the 24% CAGR delivered to shareholders

It hasn't been the best quarter for TDK Corporation (TSE:6762) shareholders, since the share price has fallen 23% in that time. But that doesn't change the fact that the returns over the last five years have been very strong. We think most investors would be happy with the 163% return, over that period. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. Of course, that doesn't necessarily mean it's cheap now.

In light of the stock dropping 6.4% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.

See our latest analysis for TDK

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 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, TDK managed to grow its earnings per share at 12% a year. This EPS growth is lower than the 21% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, TDK's TSR for the last 5 years was 188%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that TDK shareholders have received a total shareholder return of 4.9% over the last year. Of course, that includes the dividend. However, the TSR over five years, coming in at 24% per year, is even more impressive. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. Is TDK cheap compared to other companies? These 3 valuation measures might help you decide.

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.