The main aim of stock picking is to find the market-beating stocks. But even the best stock picker will only win with some selections. At this point some shareholders may be questioning their investment in REN - Redes Energéticas Nacionais, SGPS, S.A. (ELI:RENE), since the last five years saw the share price fall 11%.
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...' 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.
Looking back five years, both REN - Redes Energéticas Nacionais SGPS' share price and EPS declined; the latter at a rate of 3.1% per year. This fall in the EPS is worse than the 2% compound annual share price fall. The relatively muted share price reaction might be because the market expects the business to turn around.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for REN - Redes Energéticas Nacionais SGPS the TSR over the last 5 years was 31%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Investors in REN - Redes Energéticas Nacionais SGPS had a tough year, with a total loss of 1.7% (including dividends), against a market gain of about 19%. 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 6% per year over half a decade. 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 REN - Redes Energéticas Nacionais SGPS better, we need to consider many other factors. For instance, we've identified 2 warning signs for REN - Redes Energéticas Nacionais SGPS that you should be aware of.
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 PT exchanges.
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This article by Simply Wall St is general in nature. 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.
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