Earnings growth of 16% over 1 year hasn't been enough to translate into positive returns for Neogrid Participações (BVMF:NGRD3) shareholders

While it may not be enough for some shareholders, we think it is good to see the Neogrid Participações S.A. (BVMF:NGRD3) share price up 18% in a single quarter. But that is minimal compensation for the share price under-performance over the last year. In fact, the price has declined 15% in a year, falling short of the returns you could get by investing in an index fund.

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

See our latest analysis for Neogrid Participações

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 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.

During the unfortunate twelve months during which the Neogrid Participações share price fell, it actually saw its earnings per share (EPS) improve by 16%. It's quite possible that growth expectations may have been unreasonable in the past.

It's fair to say that the share price does not seem to be reflecting the EPS growth. But we might find some different metrics explain the share price movements better.

Given the yield is quite low, at 0.9%, we doubt the dividend can shed much light on the share price. Neogrid Participações managed to grow revenue over the last year, which is usually a real positive. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.

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

We know that Neogrid Participações has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Neogrid Participações

A Different Perspective

Given that the market gained 6.6% in the last year, Neogrid Participações shareholders might be miffed that they lost 14% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. It's great to see a nice little 18% rebound in the last three months. This could just be a bounce because the selling was too aggressive, but fingers crossed it's the start of a new trend. 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. Even so, be aware that Neogrid Participações is showing 3 warning signs in our investment analysis , and 1 of those can't be ignored...

Of course Neogrid Participações 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.