When you buy a stock and hold it for the long term, you definitely want it to produce a positive return. Also, you generally want the stock price to rise faster than the market. Unfortunately for shareholders, while the Makita Corporation (TSE:6586) The share price has increased by 47% over the last five years, which is less than the market return. Over the last twelve months, the share price has increased by a remarkable 14%.

With the stock’s market cap increasing by JPY 114 billion in the past week alone, let’s see if the underlying performance is responsible for the long-term returns.

Check out our latest analysis for Makita

To quote Buffett, “Ships will sail around the world, but the Flat Earth Society will flourish. There will continue to be huge 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 stock price and its earnings per share (EPS).

During the five-year period of share price growth, Makita recorded an annual decline of 2.1% in earnings per share.

Looking at these numbers, we assume that the decline in earnings per share is not representative of how the company has changed over the years. Since the change in earnings per share does not seem to correlate with the change in share price, it is worth taking a look at other metrics.

We doubt that the modest 1.5% dividend yield will attract many buyers to the stock. In contrast, revenue growth of 10% per year is likely to be seen as evidence that Makita is growing, so really positive. In this case, the company may be sacrificing current earnings per share to drive growth.

You can see how earnings and sales have changed over time in the graph below (click on the chart to see the exact values).

Makita is a well-known stock with a lot of analyst coverage, which suggests some visibility into future growth. If you are looking to buy or sell Makita stock, you should check this out free Report containing analysts’ consensus estimates for future earnings.

What about dividends?

It is important to consider the total return to shareholders as well as the share price return for each share. The TSR is a return calculation that takes into account the value of cash dividends (assuming that any dividends received were reinvested) and the calculated value of any discounted capital raisings and spin-offs. The TSR arguably gives a more comprehensive picture of the return generated by a share. In fact, Makita’s TSR over the last 5 years was 57%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thus in total shareholder return.

A different perspective

Makita achieved a TSR of 16% over the last twelve months. However, this was below the market average. On the positive side, the profit was actually better than the average annual return of 9% per year over five years. This could suggest that the company is attracting new investors as part of its strategy. Before forming an opinion about Makita, consider these 3 valuation metrics.

Naturally Makita may not be the best stock to buy. You may want to see this free Collection of growth stocks.

Please note that 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 Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.