Companhia de Eletricidade do Estado da Bahia - COELBA's (BVMF:CEEB3) 21% CAGR outpaced the company's earnings growth over the same three-year period

By buying an index fund, you can roughly match the market return with ease. But if you choose individual stocks with prowess, you can make superior returns. Just take a look at Companhia de Eletricidade do Estado da Bahia - COELBA (BVMF:CEEB3), which is up 17%, over three years, soundly beating the market decline of 6.4% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 14% in the last year, including dividends.

Since it's been a strong week for Companhia de Eletricidade do Estado da Bahia - COELBA shareholders, let's have a look at trend of the longer term fundamentals.

View our latest analysis for Companhia de Eletricidade do Estado da Bahia - COELBA

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 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.

Companhia de Eletricidade do Estado da Bahia - COELBA was able to grow its EPS at 4.1% per year over three years, sending the share price higher. In comparison, the 5% per year gain in the share price outpaces the EPS growth. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. It is quite common to see investors become enamoured with a business, after a few years of solid progress.

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

It might be well worthwhile taking a look at our free report on Companhia de Eletricidade do Estado da Bahia - COELBA'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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Companhia de Eletricidade do Estado da Bahia - COELBA's TSR for the last 3 years was 75%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Companhia de Eletricidade do Estado da Bahia - COELBA shareholders are up 14% for the year (even including dividends). But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 11% over half a decade It is possible that returns will improve along with the business fundamentals. It's always interesting to track share price performance over the longer term. But to understand Companhia de Eletricidade do Estado da Bahia - COELBA better, we need to consider many other factors. For example, we've discovered 2 warning signs for Companhia de Eletricidade do Estado da Bahia - COELBA (1 is a bit concerning!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.