Hanwha Systems' (KRX:272210) earnings growth rate lags the 71% CAGR delivered to shareholders

It might be of some concern to shareholders to see the Hanwha Systems Co., Ltd. (KRX:272210) share price down 14% in the last month. But that doesn't change the fact that the returns over the last three years have been spectacular. In fact, the share price has taken off in that time, up 371%. So the recent fall doesn't do much to dampen our respect for the business. Only time will tell if there is still too much optimism currently reflected in the share price.

While the stock has fallen 11% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

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There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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, Hanwha Systems achieved compound earnings per share growth of 192% per year. This EPS growth is higher than the 68% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It is of course excellent to see how Hanwha Systems has grown profits over the years, but the future is more important for shareholders. This free interactive report on Hanwha Systems' 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Hanwha Systems, it has a TSR of 397% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Hanwha Systems has rewarded shareholders with a total shareholder return of 179% in the last twelve months. That's including the dividend. That's better than the annualised return of 41% 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. It's always interesting to track share price performance over the longer term. But to understand Hanwha Systems better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Hanwha Systems .

We will like Hanwha Systems 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 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.