Hankook Tire & Technology's (KRX:161390) five-year earnings growth trails the 9.2% YoY shareholder returns

It hasn't been the best quarter for Hankook Tire & Technology Co., Ltd. (KRX:161390) shareholders, since the share price has fallen 25% in that time. But the silver lining is the stock is up over five years. In that time, it is up 40%, which isn't bad, but is below the market return of 63%.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

View our latest analysis for Hankook Tire & Technology

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Over half a decade, Hankook Tire & Technology managed to grow its earnings per share at 15% a year. The EPS growth is more impressive than the yearly share price gain of 7% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. This cautious sentiment is reflected in its (fairly low) P/E ratio of 5.25.

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 Hankook Tire & Technology has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Hankook Tire & Technology's financial health with this free 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. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Hankook Tire & Technology's TSR for the last 5 years was 56%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Hankook Tire & Technology has rewarded shareholders with a total shareholder return of 18% in the last twelve months. That's including the dividend. That gain is better than the annual TSR over five years, which is 9%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Hankook Tire & Technology better, we need to consider many other factors. For example, we've discovered 1 warning sign for Hankook Tire & Technology that you should be aware of before investing here.

Of course Hankook Tire & Technology may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on South Korean 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.

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