Optimism for Prodea Real Estate Investment Company Société Anonyme (ATH:PRODEA) has grown this past week, despite five-year decline in earnings

When we invest, we're generally looking for stocks that outperform the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. To wit, the Prodea Real Estate Investment Company Société Anonyme share price has climbed 17% in five years, easily topping the market decline of 33% (ignoring dividends).

Since the stock has added €64m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Prodea Real Estate Investment Company Société Anonyme

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.

During five years of share price growth, Prodea Real Estate Investment Company Société Anonyme actually saw its EPS drop 12% per year.

Since the EPS are down strongly, it seems highly unlikely market participants are looking at EPS to value the company. The falling EPS doesn't correlate with the climbing share price, so it's worth taking a look at other metrics.

In contrast revenue growth of 8.4% per year is probably viewed as evidence that Prodea Real Estate Investment Company Société Anonyme is growing, a real positive. In that case, the company may be sacrificing current earnings per share to drive growth.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Prodea Real Estate Investment Company Société Anonyme's earnings, revenue and cash flow.

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Prodea Real Estate Investment Company Société Anonyme the TSR over the last 5 years was 54%, 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

Investors in Prodea Real Estate Investment Company Société Anonyme had a tough year, with a total loss of 1.7% (including dividends), against a market gain of about 20%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 9% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Prodea Real Estate Investment Company Société Anonyme better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Prodea Real Estate Investment Company Société Anonyme (at least 3 which are a bit concerning) , and understanding them should be part of your investment process.

Prodea Real Estate Investment Company Société Anonyme is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been buying.

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