Buying a low-cost index fund will get you the average market return. But in any diversified portfolio of stocks, you’ll see some that fall short of the average. That’s what has happened with the True North Commercial Real Estate Investment Trust (TSE:TNT.UN) share price. It’s up 16% over three years, but that is below the market return. In the last year the stock price gained, albeit only 0.8%.
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Over the last three years, True North Commercial Real Estate Investment Trust failed to grow earnings per share, which fell 4.8% (annualized). Companies are not always focussed on EPS growth in the short term, and looking at how the share price has reacted, we don’t think EPS is the most important metric for True North Commercial Real Estate Investment Trust at the moment. So other metrics may hold the key to understanding what is influencing investors.
We doubt the dividend payments explain the share price rise, since we don’t see any improvement in that regard. It’s much more likely that the fact that True North Commercial Real Estate Investment Trust has been growing revenue at 27% a year is seen as a genuine positive. It could be that investors are content with the revenue growth on the basis that the company isn’t really focussed on profits just yet. And that might explain the higher price.
The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.
It’s good to see that there was some significant insider buying in the last three months. That’s a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. It might be well worthwhile taking a look at our free report on True North Commercial Real Estate Investment 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. The TSR incorporates the value of any discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, True North Commercial Real Estate Investment Trust’s TSR for the last 3 years was 54%, 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
We’re pleased to report that True North Commercial Real Estate Investment Trust shareholders have received a total shareholder return of 11% over one year. That’s including the dividend. However, that falls short of the 12% TSR per annum it has made for shareholders, each year, over five years. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.
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 CA exchanges.
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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. Thank you for reading.