TOTVS (BVMF:TOTS3) stock performs better than its underlying earnings growth over last five years

When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. For example, the TOTVS S.A. (BVMF:TOTS3) share price has soared 198% in the last half decade. Most would be very happy with that. On top of that, the share price is up 13% in about a quarter.

Since the stock has added R$684m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Check out our latest analysis for TOTVS

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 five years of share price growth, TOTVS achieved compound earnings per share (EPS) growth of 34% per year. The EPS growth is more impressive than the yearly share price gain of 24% over the same period. So it seems the market isn't so enthusiastic about the stock these days.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that TOTVS has improved its bottom line lately, but is it going to grow revenue? Check if analysts think TOTVS will grow revenue in the future.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for TOTVS the TSR over the last 5 years was 212%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

We regret to report that TOTVS shareholders are down 12% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 11%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 26%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Before forming an opinion on TOTVS you might want to consider these 3 valuation metrics.

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 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.