Over the last month the PagSeguro Digital Ltd. (NYSE:PAGS) has been much stronger than before, rebounding by 40%. But only the myopic could ignore the astounding decline over three years. To wit, the share price sky-dived 77% in that time. So it's about time shareholders saw some gains. The thing to think about is whether the business has really turned around.
On a more encouraging note the company has added US$377m 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.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Although the share price is down over three years, PagSeguro Digital actually managed to grow EPS by 8.0% 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, in three years, revenue has actually grown at a 32% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating PagSeguro Digital further; while we may be missing something on this analysis, there might also be an opportunity.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
PagSeguro Digital is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
A Different Perspective
PagSeguro Digital shareholders gained a total return of 11% during the year. But that was short of the market average. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 8% endured over half a decade. So this might be a sign the business has turned its fortunes around. Is PagSeguro Digital cheap compared to other companies? These 3 valuation measures might help you decide.
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 American 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.