TransAlta (TSE:TA investor three-year losses grow to 19% as the stock sheds CA$252m this past week
As an investor its worth striving to ensure your overall portfolio beats the market average. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term TransAlta Corporation (TSE:TA) shareholders have had that experience, with the share price dropping 23% in three years, versus a market return of about 24%. And more recent buyers are having a tough time too, with a drop of 22% in the last year. Furthermore, it's down 20% in about a quarter. That's not much fun for holders. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.
After losing 8.8% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.
See our latest analysis for TransAlta
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. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During five years of share price growth, TransAlta moved from a loss to profitability. We would usually expect to see the share price rise as a result. So it's worth looking at other metrics to try to understand the share price move.
Revenue is actually up 17% over the three years, so the share price drop doesn't seem to hinge on revenue, either. This analysis is just perfunctory, but it might be worth researching TransAlta more closely, as sometimes stocks fall unfairly. This could present an opportunity.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
It is of course excellent to see how TransAlta has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for TransAlta the TSR over the last 3 years was -19%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
TransAlta shareholders are down 20% for the year (even including dividends), but the market itself is up 14%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 0.5%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. To that end, you should learn about the 4 warning signs we've spotted with TransAlta (including 1 which is significant) .
But note: TransAlta may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Canadian exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
