The five-year loss for Cielo (BVMF:CIEL3) shareholders likely driven by its shrinking earnings

We're definitely into long term investing, but some companies are simply bad investments over any time frame. We don't wish catastrophic capital loss on anyone. For example, we sympathize with anyone who was caught holding Cielo S.A. (BVMF:CIEL3) during the five years that saw its share price drop a whopping 91%. And we doubt long term believers are the only worried holders, since the stock price has declined 42% over the last twelve months. Furthermore, it's down 15% in about a quarter. That's not much fun for holders. However, one could argue that the price has been influenced by the general market, which is down 14% in the same timeframe. We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.

The recent uptick of 5.8% could be a positive sign of things to come, so let's take a lot at historical fundamentals.

Check out our latest analysis for Cielo

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the five years over which the share price declined, Cielo's earnings per share (EPS) dropped by 25% each year. This reduction in EPS is less than the 38% annual reduction in the share price. So it seems the market was too confident about the business, in the past. The low P/E ratio of 6.38 further reflects this reticence.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that Cielo has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Cielo's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Cielo's TSR of was a loss of 88% for the 5 years. That wasn't as bad as its share price return, because it has paid dividends.

A Different Perspective

We regret to report that Cielo shareholders are down 39% for the year. Unfortunately, that's worse than the broader market decline of 4.3%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 13% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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 example, we've discovered 2 warning signs for Cielo (1 is significant!) that you should be aware of before investing here.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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. 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.