There’s no doubt that investing in the stock market is a truly brilliant way to build wealth. But if you choose that path, you’re going to buy some stocks that fall short of the market. Over the last year the Electricité de France S.A. (EPA:EDF) share price is up 14%, but that’s less than the broader market return. Unfortunately the longer term returns are not so good, with the stock falling 11% in the last three years.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 the last year, Electricité de France actually saw its earnings per share drop 94%.
So we don’t think that investors are paying too much attention to EPS. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.
We doubt the modest 1.9% dividend yield is doing much to support the share price. Unfortunately Electricité de France’s fell 3.2% over twelve months. So the fundamental metrics don’t provide an obvious explanation for the share price gain.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Electricité de France is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling Electricité de France stock, you should check out this free report showing analyst consensus estimates for future profits.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Electricité de France’s TSR for the last year was 16%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Electricité de France provided a TSR of 16% over the last twelve months. 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 5% over half a decade This suggests the company might be improving over time. 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. Case in point: We’ve spotted 4 warning signs for Electricité de France you should be aware of.
We will like Electricité de France better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on FR 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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