Statistically speaking, long term investing is a profitable endeavour. But that doesn’t mean long term investors can avoid big losses. Zooming in on an example, the Washington Prime Group Inc. (NYSE:WPG) share price dropped 79% in the last half decade. We certainly feel for shareholders who bought near the top. The silver lining is that the stock is up 4.5% in about a week.
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During five years of share price growth, Washington Prime Group moved from a loss to profitability. Most would consider that to be a good thing, so it’s counter-intuitive to see the share price declining. Other metrics might give us a better handle on how its value is changing over time.
The steady dividend doesn’t really explain why the share price is down. While it’s not completely obvious why the share price is down, a closer look at the company’s history might help explain it.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free report showing analyst forecasts should help you form a view on Washington Prime Group
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Washington Prime Group, it has a TSR of -60% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
While the broader market gained around 27% in the last year, Washington Prime Group shareholders lost 11% (even including dividends) . However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. However, the loss over the last year isn’t as bad as the 17% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. It’s always interesting to track share price performance over the longer term. But to understand Washington Prime Group better, we need to consider many other factors. For instance, we’ve identified 4 warning signs for Washington Prime Group (1 is concerning) that you should be aware of.
Washington Prime Group is not the only stock that insiders are buying. 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 US exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.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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