Did Consolidated Water’s (NASDAQ:CWCO) Share Price Deserve to Gain 25%?

When you buy and hold a stock for the long term, you definitely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. But Consolidated Water Co. Ltd. (NASDAQ:CWCO) has fallen short of that second goal, with a share price rise of 25% over five years, which is below the market return. Zooming in, the stock is up a respectable 11% in the last year.

See our latest analysis for Consolidated Water

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 way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).

During five years of share price growth, Consolidated Water achieved compound earnings per share (EPS) growth of 16% per year. This EPS growth is higher than the 4.6% average annual increase in the share price. So it seems the market isn’t so enthusiastic about the stock these days.

NasdaqGS:CWCO Past and Future Earnings, August 23rd 2019
NasdaqGS:CWCO Past and Future Earnings, August 23rd 2019

We know that Consolidated Water has improved its bottom line lately, but is it going to grow revenue? If you’re interested, you could check this free report showing consensus revenue forecasts.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. As it happens, Consolidated Water’s TSR for the last 5 years was 43%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It’s good to see that Consolidated Water has rewarded shareholders with a total shareholder return of 13% in the last twelve months. And that does include the dividend. That gain is better than the annual TSR over five years, which is 7.4%. 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. If you would like to research Consolidated Water in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

Of course Consolidated Water 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 US exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.