The main point of investing for the long term is to make money. Furthermore, you'd generally like to see the share price rise faster than the market. But Atlantica Sustainable Infrastructure plc (NASDAQ:AY) has fallen short of that second goal, with a share price rise of 28% over five years, which is below the market return. But if you include dividends then the return is market-beating. Zooming in, the stock is actually down 25% in the last year.
Although Atlantica Sustainable Infrastructure has shed US$152m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.
SWOT Analysis for Atlantica Sustainable Infrastructure
- Dividend is in the top 25% of dividend payers in the market.
- Interest payments on debt are not well covered.
- Expected to breakeven next year.
- Has sufficient cash runway for more than 3 years based on current free cash flows.
- Good value based on P/S ratio and estimated fair value.
- Debt is not well covered by operating cash flow.
- Paying a dividend but company is unprofitable.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
We know that Atlantica Sustainable Infrastructure has been profitable in the past. However, it made a loss in the last twelve months, suggesting profit may be an unreliable metric at this stage. So we might find other metrics can better explain the share price movements.
We note that the dividend is higher than it was previously - always nice to see. It could be that the company is reaching maturity and dividend investors are buying for the yield.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
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. As it happens, Atlantica Sustainable Infrastructure's TSR for the last 5 years was 73%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While the broader market gained around 1.7% in the last year, Atlantica Sustainable Infrastructure shareholders lost 20% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 12% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Atlantica Sustainable Infrastructure , and understanding them should be part of your investment process.
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 American exchanges.
What are the risks and opportunities for Atlantica Sustainable Infrastructure?
Trading at 39.7% below our estimate of its fair value
Earnings are forecast to grow 33.99% per year
Became profitable this year
Interest payments are not well covered by earnings
Large one-off items impacting financial results
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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.
Atlantica Sustainable Infrastructure
Atlantica Sustainable Infrastructure plc owns, manages, and invests in renewable energy, storage, natural gas and heat, electric transmission lines, and water assets in the United States, Canada, Mexico, Peru, Chile, Colombia, Uruguay, Spain, Italy, Algeria, and South Africa.
Fair value with moderate growth potential.