SHOBIDO's (TSE:7819) five-year earnings growth trails the 21% YoY shareholder returns
SHOBIDO Corporation (TSE:7819) has seen its stock price rise 118% over the past five years, with a recent 34% gain in the last three months. Despite a 36% annual growth in earnings per share (EPS), the share price has only increased by 17% annually, indicating market pessimism. The total shareholder return (TSR) over five years is 155%, largely due to dividends. Recently, shareholders enjoyed a 41% TSR over the past year, suggesting improved business momentum. However, caution is advised as there is one warning sign to consider.
The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. For instance, the price of SHOBIDO Corporation (TSE:7819) stock is up an impressive 118% over the last five years. Also pleasing for shareholders was the 34% gain in the last three months.
Since the stock has added JP¥963m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
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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. 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.
Over half a decade, SHOBIDO managed to grow its earnings per share at 36% a year. This EPS growth is higher than the 17% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Dive deeper into SHOBIDO's key metrics by checking this interactive graph of SHOBIDO'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 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. In the case of SHOBIDO, it has a TSR of 155% 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
It's nice to see that SHOBIDO shareholders have received a total shareholder return of 41% over the last year. That's including the dividend. That's better than the annualised return of 21% 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. 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. Case in point: We've spotted 1 warning sign for SHOBIDO you should be aware of.
But note: SHOBIDO may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Japanese exchanges.
