Can You Imagine How Al Rajhi REIT Fund's (TADAWUL:4340) Shareholders Feel About The 16% Share Price Increase?

We believe investing is smart because history shows that stock markets go higher in the long term. But not every stock you buy will perform as well as the overall market. Unfortunately for shareholders, while the Al Rajhi REIT Fund (TADAWUL:4340) share price is up 16% in the last year, that falls short of the market return. Al Rajhi REIT Fund hasn't been listed for long, so it's still not clear if it is a long term winner.

Check out our latest analysis for Al Rajhi REIT Fund

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).

During the last year, Al Rajhi REIT Fund actually saw its earnings per share drop 88%.

This means it's unlikely the market is judging the company based on earnings growth. 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.

Absent any improvement, we don't think a thirst for dividends is pushing up the Al Rajhi REIT Fund's share price. Rather, we'd posit that the revenue increase of 22% might be more meaningful. Revenue growth often does precede earnings growth, so some investors might be willing to forgo profits today because they have their eyes fixed firmly on the future.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. As it happens, Al Rajhi REIT Fund's TSR for the last year was 23%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

We're happy to report that Al Rajhi REIT Fund are up 23% over the year (even including dividends). Unfortunately this falls short of the market return of around 36%. The last three months haven't been so kind to Al Rajhi REIT Fund, with the share price gaining just 3.8%. It's not uncommon to see a company's share price between updates to shareholders. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 5 warning signs for Al Rajhi REIT Fund (1 is significant) that you should be aware of.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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

If you’re looking to trade Al Rajhi REIT Fund, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.