Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term Brandywine Realty Trust (NYSE:BDN) shareholders have had that experience, with the share price dropping 36% in three years, versus a market return of about 38%. And more recent buyers are having a tough time too, with a drop of 26% in the last year. The silver lining is that the stock is up 1.8% in about a week.
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 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 unfortunate three years of share price decline, Brandywine Realty Trust actually saw its earnings per share (EPS) improve by 32% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.
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 seems healthy enough, so that probably doesn’t explain the share price drop. It’s good to see that Brandywine Realty Trust has increased 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.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We know that Brandywine Realty Trust has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Brandywine Realty Trust’s financial health with this free report on its balance sheet.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Brandywine Realty Trust, it has a TSR of -25% 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
Investors in Brandywine Realty Trust had a tough year, with a total loss of 21% (including dividends), against a market gain of about 14%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 0.3% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It’s always interesting to track share price performance over the longer term. But to understand Brandywine Realty Trust better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We’ve identified 4 warning signs with Brandywine Realty Trust (at least 2 which are a bit unpleasant) , and understanding them should be part of your investment process.
Of course Brandywine Realty Trust may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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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