Shareholders Of MRV Engenharia e Participações (BVMF:MRVE3) Must Be Happy With Their 190% Total Return

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But on a lighter note, a good company can see its share price rise well over 100%. One great example is MRV Engenharia e Participações S.A. (BVMF:MRVE3) which saw its share price drive 130% higher over five years. On top of that, the share price is up 15% in about a quarter. But this move may well have been assisted by the reasonably buoyant market (up 23% in 90 days).

View our latest analysis for MRV Engenharia e Participações

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 five years of share price growth, MRV Engenharia e Participações actually saw its EPS drop 1.4% per year.

So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. 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.

The modest 1.9% dividend yield is unlikely to be propping up the share price. In contrast revenue growth of 8.2% per year is probably viewed as evidence that MRV Engenharia e Participações is growing, a real positive. In that case, the company may be sacrificing current earnings per share to drive growth.

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

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, MRV Engenharia e Participações' TSR for the last 5 years was 190%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

MRV Engenharia e Participações shareholders are down 13% for the year (even including dividends), but the market itself is up 2.4%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 24%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand MRV Engenharia e Participações better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for MRV Engenharia e Participações (of which 1 makes us a bit uncomfortable!) you should know about.

If you are like me, then you will not want to miss this free list of growing companies 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 BR exchanges.

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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. 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.
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