Cielo's (BVMF:CIEL3) earnings have declined over five years, contributing to shareholders 86% loss

By
Simply Wall St
Published
March 15, 2022
BOVESPA:CIEL3
Source: Shutterstock

Long term investing works well, but it doesn't always work for each individual stock. We really hate to see fellow investors lose their hard-earned money. Anyone who held Cielo S.A. (BVMF:CIEL3) for five years would be nursing their metaphorical wounds since the share price dropped 89% in that time. We also note that the stock has performed poorly over the last year, with the share price down 30%. While a drop like that is definitely a body blow, money isn't as important as health and happiness.

The recent uptick of 7.0% could be a positive sign of things to come, so let's take a lot at historical fundamentals.

View our latest analysis for Cielo

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.

During the five years over which the share price declined, Cielo's earnings per share (EPS) dropped by 25% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 36% per year, over the period. This implies that the market was previously too optimistic about the stock. The low P/E ratio of 6.82 further reflects this reticence.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

earnings-per-share-growth
BOVESPA:CIEL3 Earnings Per Share Growth March 15th 2022

We know that Cielo has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Cielo's total shareholder return (TSR) and its share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Its history of dividend payouts mean that Cielo's TSR, which was a 86% drop over the last 5 years, was not as bad as the share price return.

A Different Perspective

While the broader market lost about 6.1% in the twelve months, Cielo shareholders did even worse, losing 25%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. However, the loss over the last year isn't as bad as the 13% per annum loss investors have suffered over the last half decade. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. Before forming an opinion on Cielo you might want to consider these 3 valuation metrics.

We will like Cielo better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider 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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