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Those who invested in Engie Brasil Energia (BVMF:EGIE3) five years ago are up 5.8%
For many, the main point of investing is to generate higher returns than the overall market. But even the best stock picker will only win with some selections. So we wouldn't blame long term Engie Brasil Energia S.A. (BVMF:EGIE3) shareholders for doubting their decision to hold, with the stock down 20% over a half decade. Furthermore, it's down 16% in about a quarter. That's not much fun for holders. However, one could argue that the price has been influenced by the general market, which is down 7.4% in the same timeframe.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
Check out our latest analysis for Engie Brasil Energia
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.
While the share price declined over five years, Engie Brasil Energia actually managed to increase EPS by an average of 11% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.
It is unusual to see such modest share price growth in the face of sustained EPS improvements. We can look to other metrics to try to understand the situation better.
We note that the dividend has remained healthy, so that wouldn't really explain the share price drop. While it's not completely obvious why the share price is down, a closer look at the company's history might help explain it.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We know that Engie Brasil Energia has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Engie Brasil Energia
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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 Engie Brasil Energia, it has a TSR of 5.8% 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
Investors in Engie Brasil Energia had a tough year, with a total loss of 9.9% (including dividends), against a market gain of about 1.4%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 1.1% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Even so, be aware that Engie Brasil Energia is showing 4 warning signs in our investment analysis , and 2 of those are potentially serious...
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.
Valuation is complex, but we're here to simplify it.
Discover if Engie Brasil Energia might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.
About BOVESPA:EGIE3
Engie Brasil Energia
Generates, sells, and trades in electrical energy in Brazil.
Undervalued slight.