Electric Power Development's (TSE:9513) 35% YoY earnings expansion surpassed the shareholder returns over the past three years

One simple way to benefit from the stock market is to buy an index fund. But if you choose individual stocks with prowess, you can make superior returns. For example, Electric Power Development Co., Ltd. (TSE:9513) shareholders have seen the share price rise 69% over three years, well in excess of the market return (33%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 18%, including dividends.

Since the stock has added JP¥23b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Electric Power Development

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Electric Power Development was able to grow its EPS at 145% per year over three years, sending the share price higher. This EPS growth is higher than the 19% average annual increase in the share price. So it seems investors have become more cautious about the company, over time. This cautious sentiment is reflected in its (fairly low) P/E ratio of 4.80.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

It is of course excellent to see how Electric Power Development has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Electric Power Development 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 Electric Power Development the TSR over the last 3 years was 92%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Electric Power Development's TSR for the year was broadly in line with the market average, at 18%. That gain looks pretty satisfying, and it is even better than the five-year TSR of 4% per year. It is possible that management foresight will bring growth well into the future, even if the share price slows down. It's always interesting to track share price performance over the longer term. But to understand Electric Power Development better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Electric Power Development you should know about.

We will like Electric Power Development 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.