Companhia de Saneamento de Minas Gerais (BVMF:CSMG3) sheds 4.5% this week, as yearly returns fall more in line with earnings growth

By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. Just take a look at Companhia de Saneamento de Minas Gerais (BVMF:CSMG3), which is up 74%, over three years, soundly beating the market decline of 8.4% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 63% in the last year, including dividends.

Although Companhia de Saneamento de Minas Gerais has shed R$421m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

Check out our latest analysis for Companhia de Saneamento de Minas Gerais

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 three years of share price growth, Companhia de Saneamento de Minas Gerais achieved compound earnings per share growth of 15% per year. This EPS growth is lower than the 20% average annual increase in the share price. 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.

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

We know that Companhia de Saneamento de Minas Gerais has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Companhia de Saneamento de Minas Gerais' TSR for the last 3 years was 135%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Companhia de Saneamento de Minas Gerais has rewarded shareholders with a total shareholder return of 63% in the last twelve months. Of course, that includes 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. It's always interesting to track share price performance over the longer term. But to understand Companhia de Saneamento de Minas Gerais better, we need to consider many other factors. To that end, you should learn about the 3 warning signs we've spotted with Companhia de Saneamento de Minas Gerais (including 1 which shouldn't be ignored) .

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.