Investors in Yokogawa Electric (TSE:6841) have seen solid returns of 142% over the past five years

When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. For example, the Yokogawa Electric Corporation (TSE:6841) share price has soared 123% in the last half decade. Most would be very happy with that. Also pleasing for shareholders was the 29% gain in the last three months. But this move may well have been assisted by the reasonably buoyant market (up 19% in 90 days).

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

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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).

During five years of share price growth, Yokogawa Electric achieved compound earnings per share (EPS) growth of 30% per year. This EPS growth is higher than the 17% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.

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

It is of course excellent to see how Yokogawa Electric has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Yokogawa Electric stock, you should check out this FREE detailed report on its balance sheet.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Yokogawa Electric the TSR over the last 5 years was 142%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Investors in Yokogawa Electric had a tough year, with a total loss of 5.3% (including dividends), against a market gain of about 0.4%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 19%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Is Yokogawa Electric cheap compared to other companies? These 3 valuation measures might help you decide.

But note: Yokogawa Electric may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.