If You Had Bought Neoenergia's (BVMF:NEOE3) Shares A Year Ago You Would Be Down 29%

Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Investors in Neoenergia S.A. (BVMF:NEOE3) have tasted that bitter downside in the last year, as the share price dropped 29%. That falls noticeably short of the market return of around 3.2%. Because Neoenergia hasn't been listed for many years, the market is still learning about how the business performs.

See our latest analysis for Neoenergia

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 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 the unfortunate twelve months during which the Neoenergia share price fell, it actually saw its earnings per share (EPS) improve by 24%. It could be that the share price was previously over-hyped.

The divergence between the EPS and the share price is quite notable, during the year. But we might find some different metrics explain the share price movements better.

Neoenergia's revenue is actually up 4.2% over the last year. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We know that Neoenergia has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Neoenergia's financial health with this free report on its balance sheet.

A Different Perspective

While Neoenergia shareholders are down 28% for the year (even including dividends), the market itself is up 3.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 4.1% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. It's always interesting to track share price performance over the longer term. But to understand Neoenergia better, we need to consider many other factors. For instance, we've identified 2 warning signs for Neoenergia (1 makes us a bit uncomfortable) that you should be aware of.

For those who like to find winning investments this free list of growing 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 BR exchanges.

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This article by Simply Wall St is general in nature. 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.
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