Meiho Enterprise Co., Ltd. (TSE:8927) shareholders might be concerned after seeing the share price drop 10% in the last week. But that shouldn’t obscure the pleasing returns achieved by shareholders over the last three years. In fact, the company’s share price bested the return of its market index in that time, posting a gain of 66%.
In light of the stock dropping 10% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company’s positive three-year return.
Check out our latest analysis for Meiho Enterprise
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).
Meiho Enterprise was able to grow its EPS at 51% per year over three years, sending the share price higher. This EPS growth is higher than the 18% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 6.57.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
This free interactive report on Meiho Enterprise’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
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. In the case of Meiho Enterprise, it has a TSR of 89% for the last 3 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
We’re pleased to report that Meiho Enterprise shareholders have received a total shareholder return of 53% over one year. Of course, that includes the dividend. That’s better than the annualised return of 12% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. To that end, you should learn about the 4 warning signs we’ve spotted with Meiho Enterprise (including 1 which is concerning) .
We will like Meiho Enterprise better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Japanese exchanges.
Valuation is complex, but we’re helping make it simple.
Find out whether Meiho Enterprise is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.
