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If You Had Bought Vivo Energy's (LON:VVO) Shares Three Years Ago You Would Be Down 32%

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Vivo Energy plc (LON:VVO) shareholders have had that experience, with the share price dropping 32% in three years, versus a market return of about 14%.

Check out our latest analysis for Vivo Energy

There is no denying that markets are sometimes efficient, but prices do not always reflect 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.

Vivo Energy saw its EPS decline at a compound rate of 89% per year, over the last three years. This fall in the EPS is worse than the 12% compound annual share price fall. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines.

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The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
earnings-per-share-growth

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 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Vivo Energy, it has a TSR of -28% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Pleasingly, Vivo Energy's total shareholder return last year was 35%. That includes the value of the dividend. This recent result is much better than the 9% drop suffered by shareholders each year (on average) over the last three. We're generally cautious about putting too much weigh on shorter term data, but the recent improvement is definitely a positive. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 3 warning signs for Vivo Energy that you should be aware of.

Of course Vivo Energy may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.