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Should Hydro One (TSE:H) Be Disappointed With Their 18% Profit?

Simply Wall St

If you want to compound wealth in the stock market, you can do so by buying an index fund. But if you pick the right individual stocks, you could make more than that. To wit, the Hydro One Limited (TSE:H) share price is 18% higher than it was a year ago, much better than the market return of around -26% (not including dividends) in the same period. So that should have shareholders smiling. However, the stock hasn't done so well in the longer term, with the stock only up 1.6% in three years.

View our latest analysis for Hydro One

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. 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.

Hydro One went from making a loss to reporting a profit, in the last year.

When a company has just transitioned to profitability, earnings per share growth is not always the best way to look at the share price action.

However the year on year revenue growth of 5.4% would help. Many businesses do go through a phase where they have to forgo some profits to drive business development, and sometimes its for the best.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

TSX:H Income Statement March 30th 2020

Hydro One is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think Hydro One will earn in the future (free analyst consensus estimates)

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Hydro One, it has a TSR of 23% 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

It's nice to see that Hydro One shareholders have gained 23% (in total) over the last year. That includes the value of the dividend. So this year's TSR was actually better than the three-year TSR (annualized) of 4.8%. These improved returns may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Hydro One better, we need to consider many other factors. For instance, we've identified 2 warning signs for Hydro One (1 doesn't sit too well with us) that you should be aware of.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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.