Earnings growth of 174% over 1 year hasn't been enough to translate into positive returns for Keisei Electric Railway (TSE:9009) shareholders

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Keisei Electric Railway Co., Ltd. (TSE:9009) shareholders over the last year, as the share price declined 27%. That contrasts poorly with the market return of 18%. On the other hand, the stock is actually up 6.5% over three years. Shareholders have had an even rougher run lately, with the share price down 27% in the last 90 days.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

Check out our latest analysis for Keisei Electric Railway

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.

Even though the Keisei Electric Railway share price is down over the year, its EPS actually improved. It could be that the share price was previously over-hyped.

It's surprising to see the share price fall so much, despite the improved EPS. So it's easy to justify a look at some other metrics.

Given the yield is quite low, at 0.9%, we doubt the dividend can shed much light on the share price. Keisei Electric Railway's revenue is actually up 15% over the last year. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

It is of course excellent to see how Keisei Electric Railway has grown profits over the years, but the future is more important for shareholders. This free interactive report on Keisei Electric Railway's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Investors in Keisei Electric Railway had a tough year, with a total loss of 26% (including dividends), against a market gain of about 18%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 2% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Keisei Electric Railway better, we need to consider many other factors. Take risks, for example - Keisei Electric Railway has 3 warning signs (and 2 which are concerning) we think you should know about.

We will like Keisei Electric Railway better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.