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Did NorthWestern’s Share Price Deserve to Gain 51%?

Simply Wall St

When we invest, we’re generally looking for stocks that outperform the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, the NorthWestern Corporation (NYSE:NWE) share price is up 51% in the last 5 years, clearly besting than the market return of around 39% (ignoring dividends). On the other hand, the more recent gains haven’t been so impressive, with shareholders gaining just 40%, including dividends.

View our latest analysis for NorthWestern

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 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.

Over half a decade, NorthWestern managed to grow its earnings per share at 9.8% a year. So the EPS growth rate is rather close to the annualized share price gain of 8.6% per year. Therefore one could conclude that sentiment towards the shares hasn’t morphed very much. Indeed, it would appear the share price is reacting to the EPS.

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

NYSE:NWE Past and Future Earnings, March 1st 2019

We know that NorthWestern has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, NorthWestern’s TSR for the last 5 years was 81%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It’s nice to see that NorthWestern shareholders have received a total shareholder return of 40% over the last year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 13%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. If you would like to research NorthWestern in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.