It can certainly be frustrating when a stock does not perform as hoped. But no-one can make money on every call, especially in a declining market. While the Target Healthcare REIT PLC (LON:THRL) share price is down 12% in the last three years, the total return to shareholders (which includes dividends) was 5.5%. That's better than the market which declined 3.2% over the last three years. It's down 2.2% in the last seven days.
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the unfortunate three years of share price decline, Target Healthcare REIT actually saw its earnings per share (EPS) improve by 6.6% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.
We're actually a quite surprised to see the share price down while EPS have grown strongly. So we'll have to take a look at other metrics to try to understand the price action.
Given the healthiness of the dividend payments, we doubt that they've concerned the market. We like that Target Healthcare REIT has actually grown its revenue over the last three years. But it's not clear to us why the share price is down. It might be worth diving deeper into the fundamentals, lest an opportunity goes begging.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
This free interactive report on Target Healthcare REIT's balance sheet strength is a great place to start, if you want to investigate the stock further.
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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Target Healthcare REIT, it has a TSR of 5.5% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
Although it hurts that Target Healthcare REIT returned a loss of 2.6% in the last twelve months, the broader market was actually worse, returning a loss of 10.0%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 5.7% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Target Healthcare REIT , and understanding them should be part of your investment process.
We will like Target Healthcare REIT better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
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