Stock Analysis

Diversified Healthcare Trust's (NASDAQ:DHC) Stock Price Has Reduced 79% In The Past Three Years

  •  Updated
NasdaqGS:DHC
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While not a mind-blowing move, it is good to see that the Diversified Healthcare Trust (NASDAQ:DHC) share price has gained 16% in the last three months. But that doesn't change the fact that the returns over the last three years have been stomach churning. Indeed, the share price is down a whopping 79% in the last three years. So it sure is nice to see a bit of an improvement. Only time will tell if the company can sustain the turnaround.

View our latest analysis for Diversified Healthcare Trust

Diversified Healthcare Trust isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

In the last three years, Diversified Healthcare Trust saw its revenue grow by 8.2% per year, compound. That's a pretty good rate of top-line growth. So it's hard to believe the share price decline of 21% per year is due to the revenue. More likely, the market was spooked by the cost of that revenue. This is exactly why investors need to diversify - even when a loss making company grows revenue, it can fail to deliver for shareholders.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth
NasdaqGS:DHC Earnings and Revenue Growth December 30th 2020

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). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Diversified Healthcare Trust the TSR over the last 3 years was -74%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

While the broader market gained around 24% in the last year, Diversified Healthcare Trust shareholders lost 50% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 10% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Case in point: We've spotted 2 warning signs for Diversified Healthcare Trust you should be aware of, and 1 of them is concerning.

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 US exchanges.

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