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Investing in Tata Power (NSE:TATAPOWER) three years ago would have delivered you a 264%


The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But if you buy shares in a really great company, you can more than double your money. To wit, the The Tata Power Company Limited (NSE:TATAPOWER) share price has flown 241% in the last three years. How nice for those who held the stock! It’s also up 10% in about a month.

Now it’s worth having a look at the company’s fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

Check out our latest analysis for Tata Power

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.

Over the last three years, Tata Power failed to grow earnings per share, which fell 36% (annualized).

This means it’s unlikely the market is judging the company based on earnings growth. Given this situation, it makes sense to look at other metrics too.

Languishing at just 0.6%, we doubt the dividend is doing much to prop up the share price. It may well be that Tata Power revenue growth rate of 4.6% over three years has convinced shareholders to believe in a brighter future. If the company is being managed for the long term good, today’s shareholders might be right to hold on.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth
NSEI:TATAPOWER Earnings and Revenue Growth January 31st 2022

Tata Power is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So we recommend checking out this free report showing consensus forecasts

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Tata Power’s TSR for the last 3 years was 264%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It’s good to see that Tata Power has rewarded shareholders with a total shareholder return of 228% in the last twelve months. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 27% per year), it would seem that the stock’s performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It’s always interesting to track share price performance over the longer term. But to understand Tata Power better, we need to consider many other factors. Case in point: We’ve spotted 1 warning sign for Tata Power you should be aware of.

We will like Tata Power better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

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

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.



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