Equity Residential (NYSE:EQR) shareholders might be concerned after seeing the share price drop 14% in the last month. But at least the stock is up over the last three years. Arguably you’d have been better off buying an index fund, because the gain of 16% in three years isn’t amazing.
See our latest analysis for Equity Residential
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.
Over the last three years, Equity Residential failed to grow earnings per share, which fell 39% (annualized).
So we doubt that the market is looking to EPS for its main judge of the company’s value. Given this situation, it makes sense to look at other metrics too.
It could be that the revenue growth of 3.9% per year is viewed as evidence that Equity Residential is growing. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder’s faith in better days ahead will be rewarded.
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 probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free report showing analyst forecasts should help you form a view on Equity Residential
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. In the case of Equity Residential, it has a TSR of 27% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
It’s good to see that Equity Residential has rewarded shareholders with a total shareholder return of 1.3% in the last twelve months. And that does include the dividend. However, the TSR over five years, coming in at 4.1% per year, is even more impressive. Potential buyers might understandably feel they’ve missed the opportunity, but it’s always possible business is still firing on all cylinders. 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. Case in point: We’ve spotted 3 warning signs for Equity Residential you should be aware of, and 1 of them shouldn’t be ignored.
We will like Equity Residential 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 US exchanges.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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