These days it’s easy to simply buy an index fund, and your returns should (roughly) match the market. But in our experience, buying the right stocks can give your wealth a significant boost. For example, the Gladstone Land Corporation (NASDAQ:LAND) share price is up 59% in the last five years, slightly above the market return. It’s fair to say the stock has continued its long term trend in the last year, over which it has risen 39%.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Gladstone Land has made a profit in the past. On the other hand, it reported a trailing twelve months loss, suggesting it isn’t reliably profitable. So we might find other metrics can better explain the share price movements.
On the other hand, Gladstone Land’s revenue is growing nicely, at a compound rate of 30% over the last five years. It’s quite possible that management are prioritizing revenue growth over EPS growth at the moment.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. This free report showing analyst forecasts should help you form a view on Gladstone Land
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Gladstone Land the TSR over the last 5 years was 99%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It’s nice to see that Gladstone Land shareholders have received a total shareholder return of 45% over the last year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 15% 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 Gladstone Land better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We’ve identified 4 warning signs with Gladstone Land (at least 2 which make us uncomfortable) , and understanding them should be part of your investment process.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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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. 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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