Those who invested in Telefônica Brasil (BVMF:VIVT3) five years ago are up 84%

By
Simply Wall St
Published
January 18, 2022
BOVESPA:VIVT3
Source: Shutterstock

The main point of investing for the long term is to make money. Better yet, you'd like to see the share price move up more than the market average. Unfortunately for shareholders, while the Telefônica Brasil S.A. (BVMF:VIVT3) share price is up 27% in the last five years, that's less than the market return. However, if you include the dividends then the return is market beating. Zooming in, the stock is up a respectable 7.7% in the last year.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

Check out our latest analysis for Telefônica Brasil

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. 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.

Over half a decade, Telefônica Brasil managed to grow its earnings per share at 4.5% a year. So the EPS growth rate is rather close to the annualized share price gain of 5% per year. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. Indeed, it would appear the share price is reacting to the EPS.

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

earnings-per-share-growth
BOVESPA:VIVT3 Earnings Per Share Growth January 18th 2022

Dive deeper into Telefônica Brasil's key metrics by checking this interactive graph of Telefônica Brasil's earnings, revenue and cash flow.

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 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Telefônica Brasil's TSR for the last 5 years was 84%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that Telefônica Brasil shareholders have received a total shareholder return of 16% over one year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 13% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 2 warning signs for Telefônica Brasil you should be aware of, and 1 of them is potentially serious.

Of course Telefônica Brasil 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 BR exchanges.

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