If You Had Bought Shinsegae (KRX:004170) Shares Five Years Ago You'd Have Earned 33% Returns

When you buy and hold a stock for the long term, you definitely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. But Shinsegae Inc. (KRX:004170) has fallen short of that second goal, with a share price rise of 33% over five years, which is below the market return. Looking at the last year alone, the stock is up 10%.

Check out our latest analysis for Shinsegae

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

During five years of share price growth, Shinsegae actually saw its EPS drop 9.8% per year. The impact of extraordinary items on earnings, in the last year, partially explain the diversion.

Essentially, it doesn't seem likely that investors are focused on EPS. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We doubt the modest 0.7% dividend yield is attracting many buyers to the stock. On the other hand, Shinsegae's revenue is growing nicely, at a compound rate of 20% over the last five years. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

Shinsegae is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Shinsegae in this interactive graph of future profit estimates.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Shinsegae's TSR for the last 5 years was 37%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Shinsegae shareholders gained a total return of 11% during the year. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 7% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Shinsegae has 1 warning sign we think you should be aware of.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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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