Eneva's (BVMF:ENEV3) investors will be pleased with their notable 38% return over the last five years

When we invest, we're generally looking for stocks that outperform the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term Eneva S.A. (BVMF:ENEV3) shareholders have enjoyed a 38% share price rise over the last half decade, well in excess of the market return of around 16% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 0.7% in the last year.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

We've discovered 3 warning signs about Eneva. View them for free.

We don't think that Eneva's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

For the last half decade, Eneva can boast revenue growth at a rate of 28% per year. That's well above most pre-profit companies. It's good to see that the stock has 7%, but not entirely surprising given revenue shows strong growth. If you think there could be more growth to come, now might be the time to take a close look at Eneva. Of course, you'll have to research the business more fully to figure out if this is an attractive opportunity.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

If you are thinking of buying or selling Eneva stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

Eneva shareholders are up 0.7% for the year. But that was short of the market average. If we look back over five years, the returns are even better, coming in at 7% per year for five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. It's always interesting to track share price performance over the longer term. But to understand Eneva better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Eneva (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

But note: Eneva may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.