Yamabiko's (TSE:6250) five-year total shareholder returns outpace the underlying earnings growth

It's been a soft week for Yamabiko Corporation (TSE:6250) shares, which are down 13%. But that scarcely detracts from the really solid long term returns generated by the company over five years. We think most investors would be happy with the 186% return, over that period. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. The more important question is whether the stock is too cheap or too expensive today.

While this past week has detracted from the company's five-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

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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. 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).

Over half a decade, Yamabiko managed to grow its earnings per share at 31% a year. The EPS growth is more impressive than the yearly share price gain of 23% over the same period. So one could conclude that the broader market has become more cautious towards the stock. The reasonably low P/E ratio of 5.74 also suggests market apprehension.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

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

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Yamabiko the TSR over the last 5 years was 244%, 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 Yamabiko shareholders have received a total shareholder return of 17% over one year. Of course, that includes the dividend. However, that falls short of the 28% TSR per annum it has made for shareholders, each year, over five years. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. Importantly, we haven't analysed Yamabiko's dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.

Of course Yamabiko 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 Japanese exchanges.