Did Pembina Pipeline’s (TSE:PPL) Share Price Deserve to Gain 21%?

By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. Just take a look at Pembina Pipeline Corporation (TSE:PPL), which is up 21%, over three years, soundly beating the market return of 4.5% (not including dividends). On the other hand, the returns haven’t been quite so good recently, with shareholders up just 15%, including dividends.

View our latest analysis for Pembina Pipeline

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Pembina Pipeline was able to grow its EPS at 41% per year over three years, sending the share price higher. This EPS growth is higher than the 6.7% average annual increase in the share price. So it seems investors have become more cautious about the company, over time.

TSX:PPL Past and Future Earnings, September 2nd 2019
TSX:PPL Past and Future Earnings, September 2nd 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. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

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 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. We note that for Pembina Pipeline the TSR over the last 3 years was 41%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It’s nice to see that Pembina Pipeline shareholders have received a total shareholder return of 15% over the last year. And that does include the dividend. That’s better than the annualised return of 3.8% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.

Pembina Pipeline 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.

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.