Investing in Companhia de Saneamento Básico do Estado de São Paulo - SABESP (BVMF:SBSP3) three years ago would have delivered you a 115% gain

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But in contrast you can make much more than 100% if the company does well. For example, the Companhia de Saneamento Básico do Estado de São Paulo - SABESP (BVMF:SBSP3) share price has soared 103% in the last three years. That sort of return is as solid as granite. On top of that, the share price is up 16% in about a quarter.

Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

Check out our latest analysis for Companhia de Saneamento Básico do Estado de São Paulo - SABESP

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 three years of share price growth, Companhia de Saneamento Básico do Estado de São Paulo - SABESP achieved compound earnings per share growth of 35% per year. The average annual share price increase of 27% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that Companhia de Saneamento Básico do Estado de São Paulo - SABESP has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Companhia de Saneamento Básico do Estado de São Paulo - SABESP stock, you should check out this FREE detailed report on its balance sheet.

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 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Companhia de Saneamento Básico do Estado de São Paulo - SABESP's TSR for the last 3 years was 115%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that Companhia de Saneamento Básico do Estado de São Paulo - SABESP shareholders have received a total shareholder return of 59% over one year. And that does include the dividend. That's better than the annualised return of 15% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Companhia de Saneamento Básico do Estado de São Paulo - SABESP better, we need to consider many other factors. For instance, we've identified 1 warning sign for Companhia de Saneamento Básico do Estado de São Paulo - SABESP that you should be aware of.

But note: Companhia de Saneamento Básico do Estado de São Paulo - SABESP 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.