NOF's (TSE:4403) five-year total shareholder returns outpace the underlying earnings growth
NOF Corporation (TSE:4403) has seen its share price decline by 10% in the last month, but its five-year total shareholder return (TSR) stands at 109%, surpassing its share price return of 92%. The company's earnings per share (EPS) grew at an annual rate of 13%, closely aligning with the 14% increase in share price. Over the past year, shareholders enjoyed a 25% TSR, indicating positive sentiment. Despite recent price drops, the stock's long-term performance suggests potential for investors to consider.
It might be of some concern to shareholders to see the NOF Corporation (TSE:4403) share price down 10% in the last month. But the silver lining is the stock is up over five years. Unfortunately its return of 92% is below the market return of 104%.
While the stock has fallen 3.9% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.
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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Over half a decade, NOF managed to grow its earnings per share at 13% a year. This EPS growth is remarkably close to the 14% average annual increase in the share price. This indicates that investor sentiment towards the company has not changed a great deal. In fact, the share price seems to largely reflect the EPS 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?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of NOF, it has a TSR of 109% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that NOF shareholders have received a total shareholder return of 25% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 16%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Is NOF cheap compared to other companies? These 3 valuation measures might help you decide.
But note: NOF 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.
