Yahoo Finance Real Estate Investors (LON:RLE) investors are sitting on a loss of 16% if they invested five years ago
In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But even the best stock picker will only win with some selections. So we wouldn't blame long term Real Estate Investors plc (LON:RLE) shareholders for doubting their decision to hold, with the stock down 44% over a half decade.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
View our latest analysis for Real Estate Investors
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 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 unfortunate half decade during which the share price slipped, Real Estate Investors actually saw its earnings per share (EPS) improve by 1.2% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.
By glancing at these numbers, we'd posit that the the market had expectations of much higher growth, five years ago. Having said that, we might get a better idea of what's going on with the stock by looking at other metrics.
We note that the dividend has fallen in the last five years, so that may have contributed to the share price decline. The revenue decline of around 0.6% would not have helped the stock price. So the the weak dividend and revenue data could well help explain the soft share price.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. So it makes a lot of sense to check out what analysts think Real Estate Investors will earn in the future (free profit forecasts).
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. As it happens, Real Estate Investors' TSR for the last 5 years was -16%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Investors in Real Estate Investors had a tough year, with a total loss of 15% (including dividends), against a market gain of about 2.5%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 3% 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. It's always interesting to track share price performance over the longer term. But to understand Real Estate Investors better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 5 warning signs for Real Estate Investors (of which 2 are concerning!) you should know about.
Real Estate Investors is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on British exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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