By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. For example, the Axis Real Estate Investment Trust (KLSE:AXREIT) share price is up 27% in the last three years, clearly besting the market decline of around 7.8% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 2.4% in the last year , including dividends .
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 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 three years of share price growth, Axis Real Estate Investment Trust actually saw its earnings per share (EPS) drop 4.3% per year.
Based on these numbers, we think that the decline in earnings per share may not be a good representation of how the business has changed over the years. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
We note that the dividend is higher than it was preciously, so that may have assisted the share price. Sometimes yield-chasing investors will flock to a company if they think the dividend can grow over time. The revenue growth of about 8.2% per year might also encourage buyers.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Axis Real Estate Investment Trust is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So it makes a lot of sense to check out what analysts think Axis Real Estate Investment Trust will earn in the future (free analyst consensus estimates)
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Axis Real Estate Investment Trust's TSR for the last 3 years was 48%, 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
Axis Real Estate Investment Trust shareholders are up 2.4% for the year (even including dividends). Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 8% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. 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 Axis Real Estate Investment Trust (at least 1 which can't be ignored) , and understanding them should be part of your investment process.
But note: Axis Real Estate Investment Trust may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on MY 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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