Stock pickers are generally looking for stocks that will outperform the broader market. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term Northland Power Inc. (TSE:NPI) shareholders have enjoyed a 65% share price rise over the last half decade, well in excess of the market return of around 23% (not including dividends). On the other hand, the more recent gains haven’t been so impressive, with shareholders gaining just 9.8% , including dividends .
With that in mind, it’s worth seeing if the company’s underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
See our latest analysis for Northland Power
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
During five years of share price growth, Northland Power achieved compound earnings per share (EPS) growth of 11% per year. This EPS growth is reasonably close to the 11% average annual increase in the share price. Therefore one could conclude that sentiment towards the shares hasn’t morphed very much. Rather, the share price has approximately tracked EPS growth.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free interactive report on Northland Power’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, Northland Power’s TSR for the last 5 years was 100%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It’s good to see that Northland Power has rewarded shareholders with a total shareholder return of 9.8% in the last twelve months. That’s including the dividend. However, the TSR over five years, coming in at 15% per year, is even more impressive. 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. For example, we’ve discovered 4 warning signs for Northland Power (1 is potentially serious!) that you should be aware of before investing here.
We will like Northland Power 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 CA 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.
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