Those who invested in McDonald's Holdings Company (Japan) (TSE:2702) three years ago are up 32%

Low-cost index funds make it easy to achieve average market returns. But if you invest in individual stocks, some are likely to underperform. That's what has happened with the McDonald's Holdings Company (Japan), Ltd. (TSE:2702) share price. It's up 29% over three years, but that is below the market return. In the last year the stock has gained 18%.

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 McDonald's Holdings Company (Japan)

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

McDonald's Holdings Company (Japan) was able to grow its EPS at 9.4% per year over three years, sending the share price higher. We don't think it is entirely coincidental that the EPS growth is reasonably close to the 9% average annual increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Au contraire, the share price change has arguably mimicked the EPS growth.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that McDonald's Holdings Company (Japan) has improved its bottom line lately, but is it going to grow revenue? Check if analysts think McDonald's Holdings Company (Japan) will grow revenue in the future.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for McDonald's Holdings Company (Japan) the TSR over the last 3 years was 32%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

McDonald's Holdings Company (Japan)'s TSR for the year was broadly in line with the market average, at 19%. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 6%. Even if the share price growth slows down from here, there's a good chance that this is business worth watching in the long term. Before forming an opinion on McDonald's Holdings Company (Japan) you might want to consider these 3 valuation metrics.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.