NOK (TSE:7240) shareholders have earned a 26% CAGR over the last three years
NOK Corporation (TSE:7240) shareholders have experienced a 26% CAGR over the last three years, despite a 10% decline in share price this quarter. The company's share price increased by 71% over three years, outperforming the market index. NOK achieved a 7.6% annual EPS growth, while the share price rose by 20% annually, indicating growing market optimism. The total shareholder return (TSR) over three years was 98%, boosted by dividends. Year-to-date, shareholders are up 0.9%, but long-term returns are more promising at 13% annually over five years.
It hasn't been the best quarter for NOK Corporation (TSE:7240) shareholders, since the share price has fallen 10% in that time. But over three years, the returns would have left most investors smiling In fact, the company's share price bested the return of its market index in that time, posting a gain of 71%.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
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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. 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 three years of share price growth, NOK achieved compound earnings per share growth of 7.6% per year. In comparison, the 20% per year gain in the share price outpaces the EPS growth. 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 image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for NOK the TSR over the last 3 years was 98%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
NOK shareholders are up 0.9% for the year (even including dividends). But that return falls short of the market. On the bright side, the longer term returns (running at about 13% a year, over half a decade) look better. Maybe the share price is just taking a breather while the business executes on its growth 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. Even so, be aware that NOK is showing 1 warning sign in our investment analysis , you should know about...
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Japanese exchanges.
