What Type Of Returns Would Kumho Industrial's(KRX:002990) Shareholders Have Earned If They Purchased Their SharesFive Years Ago?

It is a pleasure to report that the Kumho Industrial Co., Ltd. (KRX:002990) is up 37% in the last quarter. But if you look at the last five years the returns have not been good. You would have done a lot better buying an index fund, since the stock has dropped 41% in that half decade.

Check out our latest analysis for Kumho Industrial

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

Kumho Industrial became profitable within the last five years. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics might give us a better handle on how its value is changing over time.

We note that the dividend has remained healthy, so that wouldn't really explain the share price drop. It's not immediately clear to us why the stock price is down but further research might provide some answers.

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

We know that Kumho Industrial has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Kumho Industrial

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 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. We note that for Kumho Industrial the TSR over the last 5 years was -30%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Investors in Kumho Industrial had a tough year, with a total loss of 15% (including dividends), against a market gain of about 32%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 5% over the last half decade. 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 4 warning signs for Kumho Industrial you should be aware of.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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

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