Rede D'Or São Luiz's (BVMF:RDOR3 one-year decrease in earnings delivers investors with a 10% loss

Rede D'Or São Luiz S.A. (BVMF:RDOR3) shareholders should be happy to see the share price up 27% in the last quarter. But in truth the last year hasn't been good for the share price. After all, the share price is down 11% in the last year, significantly under-performing the market.

If the past week is anything to go by, investor sentiment for Rede D'Or São Luiz isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

View our latest analysis for Rede D'Or São Luiz

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Unhappily, Rede D'Or São Luiz had to report a 22% decline in EPS over the last year. The share price fall of 11% isn't as bad as the reduction in earnings per share. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult. Indeed, with a P/E ratio of 55.65 there is obviously some real optimism that earnings will bounce back.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that Rede D'Or São Luiz has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Rede D'Or São Luiz's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Given that the market gained 4.5% in the last year, Rede D'Or São Luiz shareholders might be miffed that they lost 10% (even including dividends). While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. Putting aside the last twelve months, it's good to see the share price has rebounded by 27%, in the last ninety days. Let's just hope this isn't the widely-feared 'dead cat bounce' (which would indicate further declines to come). 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. To that end, you should be aware of the 2 warning signs we've spotted with Rede D'Or São Luiz .

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.