There’s no doubt that investing in the stock market is a truly brilliant way to build wealth. But if you choose that path, you’re going to buy some stocks that fall short of the market. Unfortunately for shareholders, while the Starwood Property Trust, Inc. (NYSE:STWD) share price is up 10% in the last year, that falls short of the market return. The longer term returns are positive, with the share price up 9.7% in three years.
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 way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
Starwood Property Trust was able to grow EPS by 5.0% in the last twelve months. The share price gain of 10% certainly outpaced the EPS growth. So it’s fair to assume the market has a higher opinion of the business than it a year ago.
You can see below how EPS has changed over time.
Dive deeper into Starwood Property Trust’s key metrics by checking this interactive graph of Starwood Property Trust’s earnings, revenue and cash flow.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Starwood Property Trust’s TSR for the last year was 20%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Starwood Property Trust provided a TSR of 20% over the year (including dividends) . That’s fairly close to the broader market return. That gain looks pretty satisfying, and it is even better than the five-year TSR of 9.4% per year. It is possible that management foresight will bring growth well into the future, even if the share price slows down. Before spending more time on Starwood Property Trust it might be wise to click here to see if insiders have been buying or selling shares.
If you are like me, then you will not want to miss this free list of growing companies that insiders are 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 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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