Kansai Paint's (TSE:4613) investors will be pleased with their 23% return over the last five years

Simply Wall St · 08/31 23:29

When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Furthermore, you'd generally like to see the share price rise faster than the market. Unfortunately for shareholders, while the Kansai Paint Co., Ltd. (TSE:4613) share price is up 15% in the last five years, that's less than the market return. Looking at the last year alone, the stock is up 8.6%.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

View our latest analysis for Kansai Paint

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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).

During five years of share price growth, Kansai Paint achieved compound earnings per share (EPS) growth of 25% per year. The EPS growth is more impressive than the yearly share price gain of 3% over the same period. 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).

earnings-per-share-growth
TSE:4613 Earnings Per Share Growth August 31st 2024

We know that Kansai Paint has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Kansai Paint stock, you should check out this FREE detailed report on its balance sheet.

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. We note that for Kansai Paint the TSR over the last 5 years was 23%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Kansai Paint shareholders are up 11% for the year (even including dividends). Unfortunately this falls short of the market return. The silver lining is that the gain was actually better than the average annual return of 4% per year over five year. It is possible that returns will improve along with the business fundamentals. It's always interesting to track share price performance over the longer term. But to understand Kansai Paint better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Kansai Paint you should be aware of, and 1 of them doesn't sit too well with us.

We will like Kansai Paint 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.