Unfortunately, investing is risky – companies can and do go bankrupt. But if you pick the right business to buy shares in, you can make more than you can lose. For example, the Safehold Inc. (NYSE:SAFE) share price had more than doubled in just one year – up 147%. Also pleasing for shareholders was the 23% gain in the last three months. But this could be related to the strong market, which is up 12% in the last three months. Note that businesses generally develop over the long term, so the returns over the last year might not reflect a long term trend.
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the last year Safehold grew its earnings per share (EPS) by 161%. We note that the earnings per share growth isn’t far from the share price growth (of 147%). So this implies that investor expectations of the company have remained pretty steady. We don’t think its coincidental that the share price is growing at a similar rate to the earnings per share.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Safehold the TSR over the last year was 152%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It’s nice to see that Safehold shareholders have gained 152% over the last year , including dividends . That’s better than the more recent three month gain of 23%, implying that share price has plateaued recently. It seems likely the market is waiting on fundamental developments with the business before pushing the share price higher (or lower). It’s always interesting to track share price performance over the longer term. But to understand Safehold better, we need to consider many other factors. To that end, you should be aware of the 2 warning signs we’ve spotted with Safehold .
Safehold is not the only stock insiders are buying. So take a peek at this free list of growing companies with 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.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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