Investing in Samsung Electro-Mechanics (KRX:009150) a year ago would have delivered you a 97% gain

Passive investing in index funds can generate returns that roughly match the overall market. But you can significantly boost your returns by picking above-average stocks. For example, the Samsung Electro-Mechanics Co., Ltd. (KRX:009150) share price is up 94% in the last 1 year, clearly besting the market return of around 51% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! Looking back further, the stock price is 62% higher than it was three years ago.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

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In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 the last year, Samsung Electro-Mechanics actually saw its earnings per share drop 11%.

This means it's unlikely the market is judging the company based on earnings growth. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.

We doubt the modest 0.8% dividend yield is doing much to support the share price. However the year on year revenue growth of 8.0% would help. Many businesses do go through a phase where they have to forgo some profits to drive business development, and sometimes its for the best.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Samsung Electro-Mechanics is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling Samsung Electro-Mechanics stock, you should check out this free report showing analyst consensus estimates for future profits.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Samsung Electro-Mechanics' TSR for the last 1 year was 97%, 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

It's good to see that Samsung Electro-Mechanics has rewarded shareholders with a total shareholder return of 97% in the last twelve months. That's including the dividend. That's better than the annualised return of 8% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. Is Samsung Electro-Mechanics cheap compared to other companies? These 3 valuation measures might help you decide.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are 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.