Despite the downward trend in earnings at Equatorial Maranhão Distribuidora de Energia (BVMF:EQMA3B) the stock rises 7.6%, bringing one-year gains to 51%
The simplest way to invest in stocks is to buy exchange traded funds. But you can significantly boost your returns by picking above-average stocks. For example, the Equatorial Maranhão Distribuidora de Energia S.A. (BVMF:EQMA3B) share price is up 35% in the last 1 year, clearly besting the market return of around 20% (not including dividends). That's a solid performance by our standards! Having said that, the longer term returns aren't so impressive, with stock gaining just 25% in three years.
The past week has proven to be lucrative for Equatorial Maranhão Distribuidora de Energia investors, so let's see if fundamentals drove the company's one-year performance.
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the last year, Equatorial Maranhão Distribuidora de Energia actually saw its earnings per share drop 1.7%.
Sometimes companies will sacrifice EPS in the short term for longer term gains; and in that case we may be able to find other positives. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
We haven't seen Equatorial Maranhão Distribuidora de Energia increase dividend payments yet, so the yield probably hasn't helped drive the share higher. It seems far more likely that the 9.0% boost to the revenue over the last year, is making the difference. Revenue growth often does precede earnings growth, so some investors might be willing to forgo profits today because they have their eyes fixed firmly on the future.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Take a more thorough look at Equatorial Maranhão Distribuidora de Energia's financial health with this free report on its balance sheet.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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 Equatorial Maranhão Distribuidora de Energia the TSR over the last 1 year was 51%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
We're pleased to report that Equatorial Maranhão Distribuidora de Energia shareholders have received a total shareholder return of 51% over one year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 1.3%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Equatorial Maranhão Distribuidora de Energia (of which 1 can't be ignored!) you should know about.
If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Brazilian 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.