Earnings growth outpaced the 28% return delivered to Daou Technology (KRX:023590) shareholders over the last year

If you want to compound wealth in the stock market, you can do so by buying an index fund. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the Daou Technology Inc. (KRX:023590) share price is 20% higher than it was a year ago, much better than the market decline of around 7.9% (not including dividends) in the same period. That's a solid performance by our standards! Zooming out, the stock is up 16% in the last three years.

Since the stock has added ₩82b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Our free stock report includes 1 warning sign investors should be aware of before investing in Daou Technology. Read for free now.

There is no denying that markets are sometimes efficient, but prices do not always reflect 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.

During the last year Daou Technology grew its earnings per share (EPS) by 57%. This EPS growth is significantly higher than the 20% increase in the share price. Therefore, it seems the market isn't as excited about Daou Technology as it was before. This could be an opportunity. The caution is also evident in the lowish P/E ratio of 2.83.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Daou Technology's TSR for the last 1 year was 28%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Daou Technology has rewarded shareholders with a total shareholder return of 28% in the last twelve months. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 7% 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. It's always interesting to track share price performance over the longer term. But to understand Daou Technology better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Daou Technology .

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.