Eni (BIT:ENI) shareholders have earned a 18% CAGR over the last three years

One simple way to benefit from the stock market is to buy an index fund. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, Eni S.p.A. (BIT:ENI) shareholders have seen the share price rise 33% over three years, well in excess of the market decline (26%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 13% in the last year, including dividends.

So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.

View our latest analysis for Eni

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Eni became profitable within the last three years. So we would expect a higher share price over the period.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Eni has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Eni stock, you should check out this FREE detailed report on its balance sheet.

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. In the case of Eni, it has a TSR of 64% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

Eni shareholders are up 13% for the year (even including dividends). But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 6% over half a decade This suggests the company might be improving over time. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Eni , and understanding them should be part of your investment process.

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 Italian 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com