Grenergy Renovables (BME:GRE) sheds 8.1% this week, as yearly returns fall more in line with earnings growth

Grenergy Renovables, S.A. (BME:GRE) shareholders might be concerned after seeing the share price drop 19% in the last month. But that doesn't change the fact that the returns over the last five years have been very strong. It's fair to say most would be happy with 155% the gain in that time. Generally speaking the long term returns will give you a better idea of business quality than short periods can. Only time will tell if there is still too much optimism currently reflected in the share price.

While the stock has fallen 8.1% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

View our latest analysis for Grenergy Renovables

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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, Grenergy Renovables achieved compound earnings per share (EPS) growth of 23% per year. This EPS growth is reasonably close to the 21% average annual increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Indeed, it would appear the share price is reacting to the EPS.

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

It is of course excellent to see how Grenergy Renovables has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

Grenergy Renovables provided a TSR of 23% over the last twelve months. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 21% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. 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. Take risks, for example - Grenergy Renovables has 3 warning signs we think you should be aware of.

But note: Grenergy Renovables may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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