While shareholders of Fleury (BVMF:FLRY3) are in the red over the last five years, underlying earnings have actually grown

While it may not be enough for some shareholders, we think it is good to see the Fleury S.A. (BVMF:FLRY3) share price up 15% in a single quarter. But if you look at the last five years the returns have not been good. In fact, the share price is down 38%, which falls well short of the return you could get by buying an index fund.

On a more encouraging note the company has added R$948m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.

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To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

While the share price declined over five years, Fleury actually managed to increase EPS by an average of 6.6% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.

Because of the sharp contrast between the EPS growth rate and the share price growth, we're inclined to look to other metrics to understand the changing market sentiment around the stock.

We note that the dividend has fallen in the last five years, so that may have contributed to the share price decline.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Fleury is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Fleury in this interactive graph of future profit estimates.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Fleury the TSR over the last 5 years was -22%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Fleury provided a TSR of 1.5% over the last twelve months. Unfortunately this falls short of the market return. But at least that's still a gain! Over five years the TSR has been a reduction of 4% per year, over five years. It could well be that the business is stabilizing. It's always interesting to track share price performance over the longer term. But to understand Fleury better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Fleury you should know about.

Of course Fleury 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.