Low-cost index funds make it easy to achieve average market returns. But if you invest in individual stocks, some are likely to underperform. Unfortunately for shareholders, while the Sachem Capital Corp. (NYSEMKT:SACH) share price is up 36% in the last three years, that falls short of the market return. Zooming in, the stock is up a respectable 10% in the last year.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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, Sachem Capital actually saw its earnings per share (EPS) drop 2.6% 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. Therefore, it makes sense to look into other metrics.
We note that the dividend is higher than it was preciously, so that may have assisted the share price. It could be that the company is reaching maturity and dividend investors are buying for the yield. The revenue growth of about 18% per year might also encourage buyers.
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?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. In the case of Sachem Capital, it has a TSR of 86% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Sachem Capital shareholders are up 21% for the year (even including dividends). Unfortunately this falls short of the market return of around 37%. At least the longer term returns (running at about 23% a year, are better. We prefer focus on longer term returns, as they are usually a more meaningful indication of the underlying business. 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 2 warning signs for Sachem Capital (1 doesn't sit too well with us) that you should be aware of.
We will like Sachem Capital 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 US 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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