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Investors three-year losses continue as Befesa (ETR:BFSA) dips a further 4.5% this week, earnings continue to decline
While not a mind-blowing move, it is good to see that the Befesa S.A. (ETR:BFSA) share price has gained 15% in the last three months. But that doesn't change the fact that the returns over the last three years have been less than pleasing. After all, the share price is down 41% in the last three years, significantly under-performing the market.
Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
Befesa saw its EPS decline at a compound rate of 17% per year, over the last three years. This change in EPS is reasonably close to the 16% average annual decrease in the share price. So it seems that investor expectations of the company are staying pretty steady, despite the disappointment. In this case, it seems that the EPS is guiding the share price.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Befesa has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.
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 Befesa the TSR over the last 3 years was -36%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Befesa shareholders are down 11% for the year (even including dividends), but the market itself is up 23%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 2% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Befesa better, we need to consider many other factors. For example, we've discovered 2 warning signs for Befesa that you should be aware of before investing here.
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 German exchanges.
Valuation is complex, but we're here to simplify it.
Discover if Befesa might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.
About XTRA:BFSA
Befesa
Offers environmental recycling services to the steel and aluminum industries in the European, Asian, and North American markets.
Undervalued with proven track record.
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