Companhia Energética do Rio Grande do Norte - COSERN's (BVMF:CSRN3) five-year earnings growth trails the 20% YoY shareholder returns

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, the Companhia Energética do Rio Grande do Norte - COSERN (BVMF:CSRN3) share price is up 54% in the last 5 years, clearly besting the market return of around 21% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 34% , including dividends .

Since it's been a strong week for Companhia Energética do Rio Grande do Norte - COSERN shareholders, let's have a look at trend of the longer term fundamentals.

Check out our latest analysis for Companhia Energética do Rio Grande do Norte - COSERN

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. 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.

During five years of share price growth, Companhia Energética do Rio Grande do Norte - COSERN achieved compound earnings per share (EPS) growth of 24% per year. This EPS growth is higher than the 9% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 6.87.

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

Dive deeper into Companhia Energética do Rio Grande do Norte - COSERN's key metrics by checking this interactive graph of Companhia Energética do Rio Grande do Norte - COSERN'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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Companhia Energética do Rio Grande do Norte - COSERN, it has a TSR of 151% 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

It's good to see that Companhia Energética do Rio Grande do Norte - COSERN has rewarded shareholders with a total shareholder return of 34% in the last twelve months. That's including the dividend. That's better than the annualised return of 20% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. To that end, you should be aware of the 2 warning signs we've spotted with Companhia Energética do Rio Grande do Norte - COSERN .

We will like Companhia Energética do Rio Grande do Norte - COSERN better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

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.