It's worth striving to beat market index fund returns to justify the effort of selecting individual stocks. But even the best stock pickers can only win on a few picks. So we wouldn't blame long-term H.I.S. Co., Ltd. (TSE:9603) shareholders for questioning their decision to hold on to the stock as it has fallen 35% in five years. Meanwhile, the stock has risen 9.9% in the past week.
The last five years have been tough for HIS shareholders, but there was a bright spot last week, so let's take a look at the longer term fundamentals to see if they're driving the negative returns.
See the latest analysis for HIS
To quote Buffett, “Ships will sail around the world, but the Flat Earth Society will thrive. There will continue to be a wide disconnect between price and value in the marketplace…” 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.
HIS has been profitable for the past five years. Most people would consider this a good thing, so it's counterintuitive that the stock price has fallen. Other metrics may be easier to explain the stock price fluctuations.
As a dividend, it's quite small, so we don't think 0.6% will have a significant impact on the share price. A 37% annual decline in earnings over five years could be an indication of the company's inability to grow in the long term, which may have motivated some shareholders to sell their shares.
The image below shows how earnings and revenue have changed over time (if you click on the image you can see greater detail).
TSE:9603 Revenue and Sales Growth August 13, 2024
HIS has improved its profitability over the last three years, but what does the future hold? It may be well worth taking a look at our free report showing how the company's financial position has changed over time.
A different perspective
While the broader market rose about 8.5% last year, HIS shareholders lost 20% (even including dividends). Even blue chip share prices can fall, but we want to see improvement in a company's fundamental metrics before getting too interested. Unfortunately, last year's performance was worse than the 6% annual loss over the past five years, which could indicate unresolved challenges. We know Baron Rothschild says investors should “buy when the blood is flowing,” but we caution that investors should first make sure they are buying a high quality company. It's always interesting to track the long term movement of a share price. But to understand HIS better, we need to consider a number of other factors. Still, we should be aware that HIS is showing 3 warning signs in our investment analysis, and 1 of them is potentially serious…
If you would prefer to check out other companies — some of which may be superior financially — 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.
Valuation is complicated, but we're here to simplify it.
Our detailed analysis, including fair value estimates, underlying risks, dividends, insider trading, financials, and more, will determine whether HIS is undervalued or overvalued.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.
