Those who invested in Nippon Telegraph and Telephone (TSE:9432) five years ago are up 77%

When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Better yet, you'd like to see the share price move up more than the market average. But Nippon Telegraph and Telephone Corporation (TSE:9432) has fallen short of that second goal, with a share price rise of 50% over five years, which is below the market return. The last year has been disappointing, with the stock price down 14% in that time.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

Our free stock report includes 2 warning signs investors should be aware of before investing in Nippon Telegraph and Telephone. Read for free now.

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 half a decade, Nippon Telegraph and Telephone managed to grow its earnings per share at 8.1% a year. That makes the EPS growth particularly close to the yearly share price growth of 8%. That suggests that the market sentiment around the company hasn't changed much over that time. In fact, the share price seems to largely reflect the EPS growth.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It might be well worthwhile taking a look at our free report on Nippon Telegraph and Telephone's earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Nippon Telegraph and Telephone, it has a TSR of 77% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

While the broader market lost about 1.8% in the twelve months, Nippon Telegraph and Telephone shareholders did even worse, losing 11% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 12%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. For instance, we've identified 2 warning signs for Nippon Telegraph and Telephone (1 doesn't sit too well with us) that you should be aware of.

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.

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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.