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If You Had Bought Northland Power (TSE:NPI) Stock Five Years Ago, You Could Pocket A 51% Gain Today

Simply Wall St

It might be of some concern to shareholders to see the Northland Power Inc. (TSE:NPI) share price down 17% in the last month. But that doesn't change the fact that the returns over the last five years have been pleasing. It has returned a market beating 51% in that time.

See our latest analysis for Northland Power

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.

During the five years of share price growth, Northland Power moved from a loss to profitability. That would generally be considered a positive, so we'd expect the share price to be up. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. Indeed, the Northland Power share price has gained 7.6% in three years. Meanwhile, EPS is up 39% per year. This EPS growth is higher than the 2.5% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

TSX:NPI Past and Future Earnings, March 18th 2020

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Northland Power's earnings, revenue and cash flow.

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 95%, 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 15% in the last twelve months. And that does include the dividend. That's better than the annualised return of 14% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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 instance, we've identified 3 warning signs for Northland Power (1 doesn't sit too well with us) that you should be aware of.

Northland Power is not the only stock that insiders are buying. 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 CA exchanges.

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.

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. Thank you for reading.