2G Energy's (ETR:2GB) five-year earnings growth trails the 40% YoY shareholder returns

By
Simply Wall St
Published
March 16, 2022
XTRA:2GB
Source: Shutterstock

We think all investors should try to buy and hold high quality multi-year winners. While not every stock performs well, when investors win, they can win big. To wit, the 2G Energy AG (ETR:2GB) share price has soared 401% over five years. And this is just one example of the epic gains achieved by some long term investors. On top of that, the share price is up 15% in about a quarter.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

Check out our latest analysis for 2G Energy

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

During five years of share price growth, 2G Energy achieved compound earnings per share (EPS) growth of 23% per year. This EPS growth is slower than the share price growth of 38% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
XTRA:2GB Earnings Per Share Growth March 16th 2022

We know that 2G Energy 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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, 2G Energy's TSR for the last 5 years was 432%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that 2G Energy has rewarded shareholders with a total shareholder return of 27% in the last twelve months. And that does include the dividend. However, that falls short of the 40% TSR per annum it has made for shareholders, each year, over five years. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. Before forming an opinion on 2G Energy you might want to consider these 3 valuation metrics.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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

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