Investors three-year losses continue as EDP Renováveis (ELI:EDPR) dips a further 6.8% this week, earnings continue to decline

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term EDP Renováveis, S.A. (ELI:EDPR) shareholders have had that experience, with the share price dropping 45% in three years, versus a market decline of about 1.8%. More recently, the share price has dropped a further 14% in a month.

If the past week is anything to go by, investor sentiment for EDP Renováveis isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

See our latest analysis for EDP Renováveis

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

EDP Renováveis saw its EPS decline at a compound rate of 5.3% per year, over the last three years. The share price decline of 18% is actually steeper than the EPS slippage. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy.

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. Dive deeper into the earnings by checking this interactive graph of EDP Renováveis' earnings, revenue and cash flow.

A Different Perspective

While the broader market gained around 5.1% in the last year, EDP Renováveis shareholders lost 8.0% (even including dividends). 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. Longer term investors wouldn't be so upset, since they would have made 7%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand EDP Renováveis better, we need to consider many other factors. Take risks, for example - EDP Renováveis has 2 warning signs we think you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.