Despite delivering investors losses of 11% over the past 3 years, Vibra Energia (BVMF:VBBR3) has been growing its earnings

By
Simply Wall St
Published
January 17, 2022
BOVESPA:VBBR3
Source: Shutterstock

For many investors, the main point of stock picking is to generate higher returns than the overall market. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term Vibra Energia S.A. (BVMF:VBBR3) shareholders have had that experience, with the share price dropping 25% in three years, versus a market return of about 24%. Furthermore, it's down 20% in about a quarter. That's not much fun for holders. But this could be related to the weak market, which is down 12% in the same period.

Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.

See our latest analysis for Vibra Energia

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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the unfortunate three years of share price decline, Vibra Energia actually saw its earnings per share (EPS) improve by 31% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

We note that the dividend has declined - a likely contributor to the share price drop. It doesn't seem like the changes in revenue would have impacted the share price much, but a closer inspection of the data might reveal something.

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

earnings-and-revenue-growth
BOVESPA:VBBR3 Earnings and Revenue Growth January 17th 2022

Vibra Energia is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling Vibra Energia stock, you should check out this free report showing analyst consensus estimates for future profits.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Vibra Energia the TSR over the last 3 years was -11%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We can sympathize with Vibra Energia about their 7.4% loss for the year ( including dividends), but the silver lining is that the broader market return was worse, at around -12%. The loss over the last year is steeper than the loss of 3% per year over three years. Whilst Baron Rothschild does say to "buy when there's blood in the streets, even if the blood is your own", buyers would need to examine the data carefully to be comfortable that the business itself is sound. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 5 warning signs for Vibra Energia (3 can't be ignored) that you should be aware of.

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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