Yahoo Finance Investors in Hydro One (TSE:H) have seen impressive returns of 104% over the past five years
Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, the Hydro One Limited (TSE:H) share price is up 72% in the last 5 years, clearly besting the market return of around 36% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 8.5%, including dividends.
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
Check out our latest analysis for Hydro One
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 five years of share price growth, Hydro One moved from a loss to profitability. That would generally be considered a positive, so we'd hope to see the share price to rise.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. It might be well worthwhile taking a look at our free report on Hydro One'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. We note that for Hydro One the TSR over the last 5 years was 104%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Hydro One shareholders are up 8.5% for the year (even including dividends). Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 15% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. 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. Even so, be aware that Hydro One is showing 2 warning signs in our investment analysis , and 1 of those is concerning...
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of undervalued small cap 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 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
