Is KM's (KOSDAQ:083550) 133% Share Price Increase Well Justified?

KM Corporation (KOSDAQ:083550) shareholders might be concerned after seeing the share price drop 29% in the last quarter. But that scarcely detracts from the really solid long term returns generated by the company over five years. It's fair to say most would be happy with 133% the gain in that time. To some, the recent pullback wouldn't be surprising after such a fast rise. Only time will tell if there is still too much optimism currently reflected in the share price.

View our latest analysis for KM

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 five years of share price growth, KM achieved compound earnings per share (EPS) growth of 48% per year. This EPS growth is higher than the 18% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 3.71.

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 KM has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at KM's financial health with this free report on its balance sheet.

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. We note that for KM the TSR over the last 5 years was 143%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that KM shareholders have received a total shareholder return of 90% over the last year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 19% 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. 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 1 warning sign for KM you should be aware of.

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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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This article by Simply Wall St is general in nature. 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.
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