Hokkaido Electric Power Company (TSE:9509) sheds 6.5% this week, as yearly returns fall more in line with earnings growth

It hasn't been the best quarter for Hokkaido Electric Power Company, Incorporated (TSE:9509) shareholders, since the share price has fallen 23% in that time. But we wouldn't complain about the gain over the last three years. It beat the market return of 43% in that time, gaining 49%.

While this past week has detracted from the company's three-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

View our latest analysis for Hokkaido Electric Power Company

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 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.

During three years of share price growth, Hokkaido Electric Power Company achieved compound earnings per share growth of 32% per year. The average annual share price increase of 14% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat. This cautious sentiment is reflected in its (fairly low) P/E ratio of 2.42.

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 Hokkaido Electric Power Company has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Hokkaido Electric Power Company the TSR over the last 3 years was 58%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Hokkaido Electric Power Company shareholders have received a total shareholder return of 17% over the last year. And that does include the dividend. That's better than the annualised return of 11% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Like risks, for instance. Every company has them, and we've spotted 5 warning signs for Hokkaido Electric Power Company (of which 2 are a bit unpleasant!) you should know about.

But note: Hokkaido Electric Power Company 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.