Tourmaline Oil's (TSE:TOU) 48% CAGR outpaced the company's earnings growth over the same three-year period

By
Simply Wall St
Published
April 11, 2022
TSX:TOU
Source: Shutterstock

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But if you buy shares in a really great company, you can more than double your money. For instance the Tourmaline Oil Corp. (TSE:TOU) share price is 184% higher than it was three years ago. That sort of return is as solid as granite. Also pleasing for shareholders was the 42% gain in the last three months.

Since it's been a strong week for Tourmaline Oil shareholders, let's have a look at trend of the longer term fundamentals.

Check out our latest analysis for Tourmaline Oil

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).

Tourmaline Oil was able to grow its EPS at 60% per year over three years, sending the share price higher. The average annual share price increase of 42% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock. We'd venture the lowish P/E ratio of 10.05 also reflects the negative sentiment around the stock.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

earnings-per-share-growth
TSX:TOU Earnings Per Share Growth April 11th 2022

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Tourmaline Oil the TSR over the last 3 years was 224%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Tourmaline Oil has rewarded shareholders with a total shareholder return of 173% in the last twelve months. Of course, that includes the dividend. That's better than the annualised return of 20% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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 Tourmaline Oil you should be aware of.

Tourmaline Oil is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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

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