Stock Analysis

Strong week for Engie Energia Chile (SNSE:ECL) shareholders doesn't alleviate pain of five-year loss

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SNSE:ECL
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While it may not be enough for some shareholders, we think it is good to see the Engie Energia Chile S.A. (SNSE:ECL) share price up 24% in a single quarter. But if you look at the last five years the returns have not been good. You would have done a lot better buying an index fund, since the stock has dropped 54% in that half decade.

While the last five years has been tough for Engie Energia Chile shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

See our latest analysis for Engie Energia Chile

SWOT Analysis for Engie Energia Chile

Strength
  • Debt is well covered by earnings.
Weakness
  • Expensive based on P/S ratio and estimated fair value.
Opportunity
  • Expected to breakeven next year.
  • Has sufficient cash runway for more than 3 years based on current free cash flows.
Threat
  • Debt is not well covered by operating cash flow.
  • Revenue is forecast to decrease over the next 2 years.

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Over five years Engie Energia Chile's earnings per share dropped significantly, falling to a loss, with the share price also lower. At present it's hard to make valid comparisons between EPS and the share price. But we would generally expect a lower price, given the situation.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

earnings-per-share-growth
SNSE:ECL Earnings Per Share Growth April 17th 2023

It might be well worthwhile taking a look at our free report on Engie Energia Chile's earnings, revenue and cash flow.

What About The Total Shareholder Return (TSR)?

Investors should note that there's a difference between Engie Energia Chile's total shareholder return (TSR) and its share price change, which we've covered above. 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. Engie Energia Chile's TSR of was a loss of 40% for the 5 years. That wasn't as bad as its share price return, because it has paid dividends.

A Different Perspective

It's nice to see that Engie Energia Chile shareholders have received a total shareholder return of 49% over the last year. That certainly beats the loss of about 7% per year over the last half decade. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Engie Energia Chile (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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

Valuation is complex, but we're helping make it simple.

Find out whether Engie Energia Chile is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.