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TransAlta Corporation (TSE:TA) shareholders might be concerned after seeing the share price drop 22% in the last month. But that doesn't change the fact that the returns over the last year have been pleasing. In that time we've seen the stock easily surpass the market return, with a gain of 71%.
Since the stock has added CA$215m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
Check out our latest analysis for TransAlta
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
During the last year, TransAlta actually saw its earnings per share drop 76%.
Given the share price gain, we doubt the market is measuring progress with EPS. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.
We doubt the modest 1.5% dividend yield is doing much to support the share price. Unfortunately TransAlta's fell 22% over twelve months. So using a snapshot of key business metrics doesn't give us a good picture of why the market is bidding up the stock.
You can see below how earnings and revenue have changed over time (discover 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. Take a more thorough look at TransAlta's financial health with this free report on its balance sheet.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, TransAlta's TSR for the last 1 year was 74%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We're pleased to report that TransAlta shareholders have received a total shareholder return of 74% over one year. And that does include the dividend. That's better than the annualised return of 10% 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 TransAlta you should be aware of, and 2 of them make us uncomfortable.