Chartwell Retirement Residences' (TSE:CSH.UN) earnings growth rate lags the 20% CAGR delivered to shareholders

Stock pickers are generally looking for stocks that will outperform the broader market. And the truth is, you can make significant gains if you buy good quality businesses at the right price. To wit, the Chartwell Retirement Residences share price has climbed 89% in five years, easily topping the market return of 68% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 35% in the last year, including dividends.

While the stock has fallen 3.3% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

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Given that Chartwell Retirement Residences only made minimal earnings in the last twelve months, we'll focus on revenue to gauge its business development. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. It would be hard to believe in a more profitable future without growing revenues.

In the last 5 years Chartwell Retirement Residences saw its revenue shrink by 4.0% per year. Even though revenue hasn't increased, the stock actually gained 14%, per year, during the same period. It's probably worth checking other factors such as the profitability, to try to understand the share price action. It may not be reflecting the revenue.

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 know that Chartwell Retirement Residences has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Chartwell Retirement Residences stock, you should check out this FREE detailed report on its balance sheet .

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Chartwell Retirement Residences the TSR over the last 5 years was 149%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Chartwell Retirement Residences shareholders have received a total shareholder return of 35% over the last year. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 20% 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 Chartwell Retirement Residences better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for Chartwell Retirement Residences you should be aware of, and 1 of them shouldn't be ignored.

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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Canadian exchanges.

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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.