Transmissora Aliança de Energia Elétrica (BVMF:TAEE11) shareholders have earned a 16% CAGR over the last five years

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. For example, the Transmissora Aliança de Energia Elétrica S.A. (BVMF:TAEE11) share price is up 27% in the last 5 years, clearly besting the market return of around 8.9% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 14%, including dividends.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders 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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During five years of share price growth, Transmissora Aliança de Energia Elétrica achieved compound earnings per share (EPS) growth of 3.7% per year. This EPS growth is lower than the 5% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Transmissora Aliança de Energia Elétrica has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

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, Transmissora Aliança de Energia Elétrica's TSR for the last 5 years was 113%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that Transmissora Aliança de Energia Elétrica has rewarded shareholders with a total shareholder return of 14% in the last twelve months. Of course, that includes the dividend. Having said that, the five-year TSR of 16% a year, is even better. It's always interesting to track share price performance over the longer term. But to understand Transmissora Aliança de Energia Elétrica better, we need to consider many other factors. To that end, you should learn about the 2 warning signs we've spotted with Transmissora Aliança de Energia Elétrica (including 1 which can't be ignored) .

But note: Transmissora Aliança de Energia Elétrica 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.