Earnings growth outpaced the notable 21% CAGR delivered to Tokai Rika (TSE:6995) shareholders over the last three years

Simply Wall St · 3d ago

By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at Tokai Rika Co., Ltd. (TSE:6995), which is up 58%, over three years, soundly beating the market return of 48% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 8.3%, including dividends.

Since it's been a strong week for Tokai Rika shareholders, let's have a look at trend of the longer term fundamentals.

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In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 three years of share price growth, Tokai Rika achieved compound earnings per share growth of 103% per year. This EPS growth is higher than the 16% average annual increase in the share price. So it seems investors have become more cautious about the company, over time. We'd venture the lowish P/E ratio of 7.01 also reflects the negative sentiment around the stock.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
TSE:6995 Earnings Per Share Growth July 3rd 2025

It is of course excellent to see how Tokai Rika has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Tokai Rika's financial health with this free report on its balance sheet.

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 Tokai Rika, it has a TSR of 78% 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

It's nice to see that Tokai Rika shareholders have received a total shareholder return of 8.3% over the last year. That's including the dividend. However, the TSR over five years, coming in at 13% per year, is even more impressive. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Tokai Rika (at least 1 which is significant) , and understanding them should be part of your investment process.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.