Investors in Komatsu (TSE:6301) have seen splendid returns of 114% over the past five years
If you buy and hold a stock for many years, you'd hope to be making a profit. Furthermore, you'd generally like to see the share price rise faster than the market. But Komatsu Ltd. (TSE:6301) has fallen short of that second goal, with a share price rise of 76% over five years, which is below the market return. However, if you include the dividends then the return is market beating. Looking at the last year alone, the stock is up 15%.
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.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
During five years of share price growth, Komatsu achieved compound earnings per share (EPS) growth of 34% per year. The EPS growth is more impressive than the yearly share price gain of 12% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. This cautious sentiment is reflected in its (fairly low) P/E ratio of 10.92.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into Komatsu's key metrics by checking this interactive graph of Komatsu's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Komatsu, it has a TSR of 114% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Komatsu shareholders gained a total return of 20% during the year. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 16% per year over five year. This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand Komatsu better, we need to consider many other factors. Even so, be aware that Komatsu is showing 1 warning sign in our investment analysis , you should know about...
Of course Komatsu 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.
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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.