Investors in Companhia de Saneamento Básico do Estado de São Paulo - SABESP (BVMF:SBSP3) have seen stellar returns of 134% over the past three years

Companhia de Saneamento Básico do Estado de São Paulo - SABESP (BVMF:SBSP3) shareholders have seen the share price descend 11% over the month. But that doesn't change the fact that the returns over the last three years have been very strong. The share price marched upwards over that time, and is now 119% higher than it was. To some, the recent share price pullback wouldn't be surprising after such a good run. Only time will tell if there is still too much optimism currently reflected in the share price.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

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

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Companhia de Saneamento Básico do Estado de São Paulo - SABESP was able to grow its EPS at 54% per year over three years, sending the share price higher. This EPS growth is higher than the 30% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat. This cautious sentiment is reflected in its (fairly low) P/E ratio of 6.39.

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? This free interactive report on Companhia de Saneamento Básico do Estado de São Paulo - SABESP's balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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, Companhia de Saneamento Básico do Estado de São Paulo - SABESP's TSR for the last 3 years was 134%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that Companhia de Saneamento Básico do Estado de São Paulo - SABESP shareholders have received a total shareholder return of 20% over the last year. That's including the dividend. That's better than the annualised return of 10% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Companhia de Saneamento Básico do Estado de São Paulo - SABESP (at least 1 which is concerning) , and understanding them should be part of your investment process.

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.