These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But investors can boost returns by picking market-beating companies to own shares in. For example, the TerraForm Power, Inc. (NASDAQ:TERP) share price is up 48% in the last year, clearly besting the market return of around 5.4% (not including dividends). So that should have shareholders smiling. However, the stock hasn't done so well in the longer term, with the stock only up 25% in three years.
TerraForm Power isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last year TerraForm Power saw its revenue grow by 58%. That's a head and shoulders above most loss-making companies. The solid 48% share price gain goes down pretty well, but it's not necessarily as good as you might expect given the top notch revenue growth. So quite frankly it could be a good time to investigate TerraForm Power in some detail. Human beings have trouble conceptualizing (and valuing) exponential growth. Is that what we're seeing here?
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
This free interactive report on TerraForm Power's balance sheet strength 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of TerraForm Power, it has a TSR of 57% for the last year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We're pleased to report that TerraForm Power shareholders have received a total shareholder return of 57% over one year. That's including the dividend. Notably the five-year annualised TSR loss of 2.0% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. If you would like to research TerraForm Power in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
Of course TerraForm Power may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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 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. Thank you for reading.