The three-year loss for Algonquin Power & Utilities (TSE:AQN) shareholders likely driven by its shrinking earnings

If you love investing in stocks you're bound to buy some losers. But the long term shareholders of Algonquin Power & Utilities Corp. (TSE:AQN) have had an unfortunate run in the last three years. Sadly for them, the share price is down 65% in that time. Shareholders have had an even rougher run lately, with the share price down 14% in the last 90 days.

While the stock has risen 3.9% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

View our latest analysis for Algonquin Power & Utilities

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.

During five years of share price growth, Algonquin Power & Utilities moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. So given the share price is down it's worth checking some other metrics too.

It's quite likely that the declining dividend has caused some investors to sell their shares, pushing the price lower in the process. It doesn't seem like the changes in revenue would have impacted the share price much, but a closer inspection of the data might reveal something.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. So it makes a lot of sense to check out what analysts think Algonquin Power & Utilities will earn in the future (free profit forecasts).

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Algonquin Power & Utilities the TSR over the last 3 years was -58%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Investors in Algonquin Power & Utilities had a tough year, with a total loss of 19% (including dividends), against a market gain of about 20%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 9% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for Algonquin Power & Utilities (of which 1 can't be ignored!) you should know about.

Algonquin Power & Utilities is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been 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.