S&D's (KOSDAQ:260970) three-year earnings growth trails the 79% YoY shareholder returns

S&D Co., Ltd (KOSDAQ:260970) shareholders might be concerned after seeing the share price drop 24% in the last quarter. But over the last three years the stock has shone bright like a diamond. In fact, the share price has taken off in that time, up 434%. As long term investors the recent fall doesn't detract all that much from the longer term story. The only way to form a view of whether the current price is justified is to consider the merits of the business itself.

Since the stock has added ₩60b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

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 three years of share price growth, S&D achieved compound earnings per share growth of 45% per year. This EPS growth is lower than the 75% average annual increase in the share price. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. That's not necessarily surprising considering the three-year track record of earnings growth.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

It is of course excellent to see how S&D has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling S&D stock, you should check out this FREE detailed 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 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. We note that for S&D the TSR over the last 3 years was 470%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that S&D shareholders have received a total shareholder return of 82% over one year. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 26% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. For example, we've discovered 2 warning signs for S&D (1 is a bit unpleasant!) that you should be aware of before investing here.

Of course S&D may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.