Companhia de Saneamento de Minas Gerais (BVMF:CSMG3) shareholders have earned a 47% CAGR over the last three years

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But in contrast you can make much more than 100% if the company does well. To wit, the Companhia de Saneamento de Minas Gerais (BVMF:CSMG3) share price has flown 126% in the last three years. That sort of return is as solid as granite. It's also good to see the share price up 20% over the last quarter.

Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Companhia de Saneamento de Minas Gerais was able to grow its EPS at 47% per year over three years, sending the share price higher. This EPS growth is higher than the 31% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 9.63.

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

It is of course excellent to see how Companhia de Saneamento de Minas Gerais has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Companhia de Saneamento de Minas Gerais stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. We note that for Companhia de Saneamento de Minas Gerais the TSR over the last 3 years was 217%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that Companhia de Saneamento de Minas Gerais has rewarded shareholders with a total shareholder return of 58% in the last twelve months. That's including the dividend. That's better than the annualised return of 31% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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 3 warning signs for Companhia de Saneamento de Minas Gerais you should be aware of, and 1 of them can't be ignored.

Of course Companhia de Saneamento de Minas Gerais 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.