The five-year loss for the shareholders of Cielo (BVMF: CIEL3) probably due to the decline in its profits

We are definitely into investing for the long term, but some companies are just plain bad investments all the time. We do not wish anyone a catastrophic capital loss. For example, we sympathize with anyone who has been caught holding Cielo SA (BVMF: CIEL3) over the five years that have seen its share price drop 91%. And we doubt long-term believers are the only worried holders, as the stock price has fallen 42% in the past twelve months. In addition, it has fallen by 15% in about a quarter. It’s not a lot of fun for the holders. However, one could argue that the price was influenced by the general market, which is down 14% over the same period. We really feel for the shareholders in this scenario. It’s a good reminder of the importance of diversification, and it’s worth keeping in mind that life isn’t just about money, anyway.

The recent 5.8% rise could be a positive sign of things to come, so let’s take a hard look at historical fundamentals.

Check out our latest review for Cielo

In his essay Graham-and-Doddsville super-investors Warren Buffett described how stock prices don’t always rationally reflect a company’s value. One way to look at how market sentiment has changed over time is to look at the interaction between a company’s stock price and its earnings per share (EPS).

In the five years that the stock price has fallen, Cielo’s earnings per share (EPS) has fallen 25% each year. This drop in EPS is lower than the 38% annual drop in the share price. So it seems that the market was overconfident in the company in the past. The low P / E ratio of 6.38 still reflects this reluctance.

You can see how EPS has changed over time in the image below (click on the graph to see the exact values).

We know Cielo has improved its results lately, but will it increase its revenue? If you are interested, you can check this free report showing consensus revenue forecast.

What about the Total Shareholder Return (TSR)?

Investors should note that there is a difference between Cielo’s Total Shareholder Return (TSR) and the change in its share price, which we covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any impact or discounted capital increases offered to shareholders. Cielo’s TSR was an 88% loss for the 5 years. It wasn’t as bad as its stock price performance because it paid dividends.

A different perspective

We regret to report that Cielo shareholders are down 39% for the year. Sadly, that’s worse than the broader market drop of 4.3%. However, it may simply be that the stock price has been affected by wider market fluctuations. It might be worth keeping an eye on the fundamentals, in case there is a good opportunity. Unfortunately, last year’s performance capped a bad run, with shareholders facing a total loss of 13% per year over five years. Generally speaking, long-term weakness in stock prices can be a bad sign, although contrarian investors may want to seek the stock in hopes of a rally. While it is worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we discovered 2 warning signs for Cielo (1 is significant!) That you should know before investing here.

For those who like to find winning investments this free list of growing companies with recent insider buys, might be just the ticket.

Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently traded on the BR exchanges.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.