CPFL Energia (BVMF:CPFE3) jumps 3.1% this week, though earnings growth is still tracking behind five-year shareholder returns

While CPFL Energia S.A. (BVMF:CPFE3) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 10% in the last quarter. But the silver lining is the stock is up over five years. However we are not very impressed because the share price is only up 17%, less than the market return of 48%.

Since the stock has added R$1.2b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for CPFL Energia

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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).

Over half a decade, CPFL Energia managed to grow its earnings per share at 19% a year. The EPS growth is more impressive than the yearly share price gain of 3% over the same period. So one could conclude that the broader market has become more cautious towards the stock. The reasonably low P/E ratio of 7.21 also suggests market apprehension.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of CPFL Energia, it has a TSR of 72% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

CPFL Energia shareholders gained a total return of 26% during the year. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 11% per year over five year. This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand CPFL Energia better, we need to consider many other factors. To that end, you should learn about the 3 warning signs we've spotted with CPFL Energia (including 1 which doesn't sit too well with us) .

Of course CPFL Energia 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.