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TransAlta (TSE:TA) Shareholders Have Enjoyed A 47% Share Price Gain

Simply Wall St

One simple way to benefit from the stock market is to buy an index fund. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at TransAlta Corporation (TSE:TA), which is up 47%, over three years, soundly beating the market return of 4.2% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 21%, including dividends.

Check out our latest analysis for TransAlta

TransAlta isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

TransAlta actually saw its revenue drop by 0.8% per year over three years. Despite the lack of revenue growth, the stock has returned 14%, compound, over three years. If the company is cutting costs profitability could be on the horizon, but the revenue decline is a prima facie concern.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

TSX:TA Income Statement, September 5th 2019

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. If you are thinking of buying or selling TransAlta stock, you should check out this free report showing analyst profit forecasts.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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, TransAlta's TSR for the last 3 years was 57%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that TransAlta shareholders have received a total shareholder return of 21% over the last year. That's including the dividend. There's no doubt those recent returns are much better than the TSR loss of 2.1% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of TransAlta by clicking this link.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA 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 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. Thank you for reading.