TransAlta (TSE:TA) shareholders notch a 12% CAGR over 5 years, yet earnings have been shrinking

The main point of investing for the long term is to make money. Better yet, you'd like to see the share price move up more than the market average. But TransAlta Corporation (TSE:TA) has fallen short of that second goal, with a share price rise of 64% over five years, which is below the market return. However, more recent buyers should be happy with the increase of 38% over the last year.

The past week has proven to be lucrative for TransAlta investors, so let's see if fundamentals drove the company's five-year performance.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

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. 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 the five years of share price growth, TransAlta 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 like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of TransAlta'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 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 TransAlta the TSR over the last 5 years was 78%, 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

It's good to see that TransAlta has rewarded shareholders with a total shareholder return of 41% in the last twelve months. And that does include the dividend. That's better than the annualised return of 12% 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. It's always interesting to track share price performance over the longer term. But to understand TransAlta better, we need to consider many other factors. Take risks, for example - TransAlta has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

TransAlta 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.