Earnings growth outpaced the strong 132% return delivered to Enel Generación Chile (SNSE:ENELGXCH) shareholders over the last year

Unless you borrow money to invest, the potential losses are limited. But if you pick the right stock, you can make a lot more than 100%. Take, for example Enel Generación Chile S.A. (SNSE:ENELGXCH). Its share price is already up an impressive 111% in the last twelve months. Also pleasing for shareholders was the 28% gain in the last three months. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report. Zooming out, the stock is actually down 17% in the last three years.

Since the stock has added CL$74b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Enel Generación Chile

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the last year Enel Generación Chile saw its earnings per share (EPS) increase strongly. While that particular rate of growth is unlikely to be sustained for long, it is still remarkable. We are not surprised the share price is up. Strong growth like this can be evidence of a fundamental inflection point in the business, making it a good time to investigate the stock more closely.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that Enel Generación Chile has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

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. We note that for Enel Generación Chile the TSR over the last 1 year was 132%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Enel Generación Chile shareholders have received a total shareholder return of 132% over the last year. That's including the dividend. There's no doubt those recent returns are much better than the TSR loss of 4% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. 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 3 warning signs with Enel Generación Chile (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

We will like Enel Generación Chile better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

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.