Northland Power (TSE:NPI) Has Gifted Shareholders With A Fantastic 161% Total Return On Their Investment
Northland Power Inc. (TSE:NPI) shareholders might be concerned after seeing the share price drop 10% in the last week. But in stark contrast, the returns over the last half decade have impressed. We think most investors would be happy with the 108% return, over that period. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. The more important question is whether the stock is too cheap or too expensive today.
Check out our latest analysis for Northland Power
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Northland Power share price is up 96% in the last three years. In the same period, EPS is up 27% per year. That makes the EPS growth rather close to the annualized share price gain of 25% over the same period. So you could reasonably conclude that investor sentiment towards the stock has remained pretty steady, over time. Rather, the share price has approximately tracked EPS growth.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We like that insiders have been buying shares in the last twelve months. 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?
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Northland Power's TSR for the last 5 years was 161%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that Northland Power has rewarded shareholders with a total shareholder return of 40% in the last twelve months. Of course, that includes the dividend. That's better than the annualised return of 21% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 4 warning signs for Northland Power you should be aware of, and 1 of them is concerning.
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.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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