Investing in Equatorial Pará Distribuidora de Energia (BVMF:EQPA3) five years ago would have delivered you a 204% gain

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And in our experience, buying the right stocks can give your wealth a significant boost. To wit, the Equatorial Pará Distribuidora de Energia share price has climbed 83% in five years, easily topping the market return of 9.5% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 6.1%, including dividends.

So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.

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To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Over half a decade, Equatorial Pará Distribuidora de Energia managed to grow its earnings per share at 26% a year. This EPS growth is higher than the 13% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company. The reasonably low P/E ratio of 7.06 also suggests market apprehension.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

This free interactive report on Equatorial Pará Distribuidora de Energia's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Equatorial Pará Distribuidora de Energia's TSR for the last 5 years was 204%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Equatorial Pará Distribuidora de Energia provided a TSR of 6.1% over the last twelve months. But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 25% per year for five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. It's always interesting to track share price performance over the longer term. But to understand Equatorial Pará Distribuidora de Energia better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for Equatorial Pará Distribuidora de Energia you should be aware of, and 2 of them are a bit unpleasant.

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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.