The main point of investing for the long term is to make money. Furthermore, you'd generally like to see the share price rise faster than the market But ALLETE, Inc. (NYSE:ALE) has fallen short of that second goal, with a share price rise of 52% over five years, which is below the market return. But if you include dividends then the return is market-beating. Unfortunately the share price is down 2.1% in the last year.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Over half a decade, ALLETE managed to grow its earnings per share at 5.0% a year. This EPS growth is slower than the share price growth of 8.8% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that ALLETE 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). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, ALLETE's TSR for the last 5 years was 79%, 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
ALLETE shareholders are up 0.8% for the year (even including dividends) . Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 12% per year for five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. If you would like to research ALLETE in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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