Companhia de Eletricidade do Estado da Bahia - COELBA's (BVMF:CEEB3) one-year earnings growth trails the respectable shareholder returns

There's no doubt that investing in the stock market is a truly brilliant way to build wealth. But if you choose that path, you're going to buy some stocks that fall short of the market. For example, the Companhia de Eletricidade do Estado da Bahia - COELBA (BVMF:CEEB3), share price is up over the last year, but its gain of 15% trails the market return. Longer term, the stock is up 12% in three years.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

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To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 the last year Companhia de Eletricidade do Estado da Bahia - COELBA grew its earnings per share (EPS) by 19%. This EPS growth is significantly higher than the 15% increase in the share price. So it seems like the market has cooled on Companhia de Eletricidade do Estado da Bahia - COELBA, despite the growth. Interesting. This cautious sentiment is reflected in its (fairly low) P/E ratio of 5.60.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

Dive deeper into Companhia de Eletricidade do Estado da Bahia - COELBA's key metrics by checking this interactive graph of Companhia de Eletricidade do Estado da Bahia - COELBA's earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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 Companhia de Eletricidade do Estado da Bahia - COELBA the TSR over the last 1 year was 33%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Companhia de Eletricidade do Estado da Bahia - COELBA has rewarded shareholders with a total shareholder return of 33% in the last twelve months. And that does include the dividend. That gain is better than the annual TSR over five years, which is 15%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Companhia de Eletricidade do Estado da Bahia - COELBA better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Companhia de Eletricidade do Estado da Bahia - COELBA , and understanding them should be part of your investment process.

Of course Companhia de Eletricidade do Estado da Bahia - COELBA may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.