The three-year decline in earnings for SMU SNSE:SMU) isn't encouraging, but shareholders are still up 101% over that period

By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, SMU S.A. (SNSE:SMU) shareholders have seen the share price rise 67% over three years, well in excess of the market return (32%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 2.3% in the last year, including dividends.

Since the long term performance has been good but there's been a recent pullback of 6.8%, let's check if the fundamentals match the share price.

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To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

Over the last three years, SMU failed to grow earnings per share, which fell 29% (annualized).

Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Therefore, we think it's worth considering other metrics as well.

The dividend is no better now than it was three years ago, so that is unlikely to have driven the share price higher. And revenue growth isn't impressive. It may be that a closer look at revenue trends can explain the share price.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

Take a more thorough look at SMU's financial health with this free report on its balance sheet.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of SMU, it has a TSR of 101% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

SMU provided a TSR of 2.3% over the last twelve months. But that was short of the market average. On the bright side, the longer term returns (running at about 16% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. It's always interesting to track share price performance over the longer term. But to understand SMU better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for SMU you should be aware of, and 1 of them shouldn't be ignored.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chilean 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.