Positive earnings growth hasn’t been enough to get Cyrela Brazil Realty Empreendimentos e Participações (BVMF:CYRE3) shareholders a favorable return over the last three years

For many investors, the main point of stock picking is to generate higher returns than the overall market. But if you try your hand at stock picking, your risk returning less than the market. Unfortunately, that’s been the case for longer term Cyrela Brazil Realty S.A. Empreendimentos e Participações (BVMF:CYRE3) shareholders, since the share price is down 49% in the last three years, falling well short of the market decline of around 5.9%. Unfortunately the share price momentum is still quite negative, with prices down 21% in thirty days. Importantly, this could be a market reaction to the recently released financial results. You can check out the latest numbers in our company report.

On a more encouraging note the company has added R$303m to its market cap in just the last 7 days, so let’s see if we can determine what’s driven the three-year loss for shareholders.

Check out the opportunities and risks within the BR Consumer Durables industry.

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Although the share price is down over three years, Cyrela Brazil Realty Empreendimentos e Participações actually managed to grow EPS by 26% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.

It’s worth taking a look at other metrics, because the EPS growth doesn’t seem to match with the falling share price.

We note that the dividend seems healthy enough, so that probably doesn’t explain the share price drop. It’s good to see that Cyrela Brazil Realty Empreendimentos e Participações has increased its revenue over the last three years. But it’s not clear to us why the share price is down. It might be worth diving deeper into the fundamentals, lest an opportunity goes begging.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

Cyrela Brazil Realty Empreendimentos e Participações is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Cyrela Brazil Realty Empreendimentos e Participações, it has a TSR of -39% 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

It’s good to see that Cyrela Brazil Realty Empreendimentos e Participações has rewarded shareholders with a total shareholder return of 1.8% in the last twelve months. And that does include the dividend. Having said that, the five-year TSR of 9% a year, is even better. Potential buyers might understandably feel they’ve missed the opportunity, but it’s always possible business is still firing on all cylinders. 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 2 warning signs with Cyrela Brazil Realty Empreendimentos e Participações , and understanding them should be part of your investment process.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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