Clearway Energy (NYSE:CWEN.A) sheds 3.9% this week, as yearly returns fall more in line with earnings growth


By buying an index fund, you can roughly match the market return with ease. But if you choose individual stocks with prowess, you can make superior returns. For example, Clearway Energy, Inc. (NYSE:CWEN.A) shareholders have seen the share price rise 79% over three years, well in excess of the market return (28%, not including dividends). On the other hand, the returns haven’t been quite so good recently, with shareholders up just 22%, including dividends.

While the stock has fallen 3.9% this week, it’s worth focusing on the longer term and seeing if the historical stocks returns have been driven by the underlying fundamentals.

Check out our latest analysis for Clearway Energy

We don’t think that Clearway Energy’s modest trailing twelve month profit has the market’s full attention at the moment. We think revenue is probably a better guide. Generally speaking, we’d consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

Over the last three years Clearway Energy has grown its revenue at 8.4% annually. That’s a very respectable growth rate. While the share price has done well, compounding at 21% yearly, over three years, that move doesn’t seem over the top. Of course, valuation is quite sensitive to the rate of growth. Keep in mind that the strength of the balance sheet impacts the options open to the company.

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

We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. You can see what analysts are predicting for Clearway Energy in this interactive graph of future profit estimates.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Clearway Energy’s TSR for the last 3 years was 105%, which exceeds the share price mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It’s nice to see that Clearway Energy shareholders have received a total shareholder return of 22% over the last year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 17%. Therefore it seems like sentiment around the company has been positive lately. 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 Clearway Energy better, we need to consider many other factors. Case in point: We’ve spotted 5 warning signs for Clearway Energy you should be aware of, and 2 of them are a bit concerning.

We will like Clearway Energy 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 are currently trade on US 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.

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