ISC (KOSDAQ:095340) jumps 8.5% this week, though earnings growth is still tracking behind five-year shareholder returns

While ISC Co., Ltd. (KOSDAQ:095340) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 28% in the last quarter. But that does not change the realty that the stock's performance has been terrific, over five years. In that time, the share price has soared some 596% higher! So it might be that some shareholders are taking profits after good performance. But the real question is whether the business fundamentals can improve over the long term. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 41% drop, in the last year. We love happy stories like this one. The company should be really proud of that performance!

Since the stock has added ₩92b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for ISC

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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, ISC achieved compound earnings per share (EPS) growth of 15% per year. This EPS growth is lower than the 47% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth. This optimism is visible in its fairly high P/E ratio of 65.67.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

Dive deeper into ISC's key metrics by checking this interactive graph of ISC's earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of ISC, it has a TSR of 623% for the last 5 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

ISC shareholders are down 41% for the year (even including dividends), but the market itself is up 5.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 49%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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 instance, we've identified 3 warning signs for ISC that you should be aware of.

We will like ISC 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.