Those who invested in Iberdrola (BME:IBE) five years ago are up 85%

Published
August 05, 2022
BME:IBE
Source: Shutterstock

Stock pickers are generally looking for stocks that will outperform the broader market. Buying under-rated businesses is one path to excess returns. For example, the Iberdrola, S.A. (BME:IBE) share price is up 55% in the last 5 years, clearly besting the market decline of around 18% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 6.7% in the last year , including dividends .

So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.

Check out our latest analysis for Iberdrola

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.

Over half a decade, Iberdrola managed to grow its earnings per share at 10% a year. So the EPS growth rate is rather close to the annualized share price gain of 9% per year. That suggests that the market sentiment around the company hasn't changed much over that time. Rather, the share price has approximately tracked EPS growth.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth
BME:IBE Earnings Per Share Growth August 5th 2022

We know that Iberdrola has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Iberdrola, it has a TSR of 85% 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 nice to see that Iberdrola shareholders have received a total shareholder return of 6.7% over the last year. Of course, that includes the dividend. Having said that, the five-year TSR of 13% a year, is even better. 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. 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 - Iberdrola has 2 warning signs we think you should be aware of.

But note: Iberdrola 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 ES exchanges.

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About BME:IBE

Iberdrola

Iberdrola, S.A. engages in the generation, transmission, distribution, and supply of electricity in Spain and internationally.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation2
Future Growth1
Past Performance5
Financial Health3
Dividends4

Read more about these checks in the individual report sections or in our analysis model.

Solid track record average dividend payer.