The main aim of stock picking is to find the market-beating stocks. But even the best stock picker will only win with some selections. At this point some shareholders may be questioning their investment in E.ON SE (ETR:EOAN), since the last five years saw the share price fall 35%. Furthermore, it's down 12% in about a quarter. That's not much fun for holders. However, one could argue that the price has been influenced by the general market, which is down 15% in the same timeframe.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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).
During five years of share price growth, E.ON moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics might give us a better handle on how its value is changing over time.
The most recent dividend was actually lower than it was in the past, so that may have sent the share price lower. On top of that, revenue has declined by 24% per year over the half decade; that could be a red flag for some investors.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
E.ON is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling E.ON stock, you should check out this free report showing analyst consensus estimates for future profits.
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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of E.ON, it has a TSR of -23% for the last 5 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
It's good to see that E.ON has rewarded shareholders with a total shareholder return of 2.1% in the last twelve months. That's including the dividend. Notably the five-year annualised TSR loss of 5.1% per year compares very unfavourably with the recent share price performance. 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. Like risks, for instance. Every company has them, and we've spotted 6 warning signs for E.ON (of which 1 is concerning!) you should know about.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on DE exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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