DAEMO Engineering (KOSDAQ:317850) jumps 10% this week, taking three-year gains to 90%

By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the DAEMO Engineering Co., Ltd. (KOSDAQ:317850) share price is up 82% in the last three years, clearly besting the market decline of around 13% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 9.1% in the last year, including dividends.

The past week has proven to be lucrative for DAEMO Engineering investors, so let's see if fundamentals drove the company's three-year performance.

Check out our latest analysis for DAEMO Engineering

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the three years of share price growth, DAEMO Engineering actually saw its earnings per share (EPS) drop 80% per year.

So we doubt that the market is looking to EPS for its main judge of the company's value. Given this situation, it makes sense to look at other metrics too.

Languishing at just 0.4%, we doubt the dividend is doing much to prop up the share price. You can only imagine how long term shareholders feel about the declining revenue trend (slipping at 3.1% per year). What's clear is that historic earnings and revenue aren't matching up with the share price action, very well. So you might have to dig deeper to get a grasp of the situation

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

This free interactive report on DAEMO Engineering's balance sheet strength is a great place to start, if you want to investigate the stock further.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, DAEMO Engineering's TSR for the last 3 years was 90%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's nice to see that DAEMO Engineering shareholders have received a total shareholder return of 9.1% over the last year. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 4% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. For instance, we've identified 3 warning signs for DAEMO Engineering (2 can't be ignored) that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.