Those who invested in EDP - Energias de Portugal (ELI:EDP) five years ago are up 61%

It hasn't been the best quarter for EDP - Energias de Portugal, S.A. (ELI:EDP) shareholders, since the share price has fallen 14% in that time. On the bright side the share price is up over the last half decade. In that time, it is up 26%, which isn't bad, but is below the market return of 40%.

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 EDP - Energias de Portugal

SWOT Analysis for EDP - Energias de Portugal

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.

During five years of share price growth, EDP - Energias de Portugal actually saw its EPS drop 2.8% per year.

Since EPS is down a bit, and the share price is up, it's probably that the market previously had some concerns about the company, but the reality has been better than feared. Having said that, if the EPS falls continue we'd be surprised to see a sustained increase in share price.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of EDP - Energias de Portugal, it has a TSR of 61% 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

Although it hurts that EDP - Energias de Portugal returned a loss of 2.6% in the last twelve months, the broader market was actually worse, returning a loss of 3.1%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 10% for each year. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with EDP - Energias de Portugal (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

Of course EDP - Energias de Portugal may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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