In order to justify the effort of selecting individual stocks, it’s worth striving to beat the returns from a market index fund. But every investor is virtually certain to have both over-performing and under-performing stocks. At this point some shareholders may be questioning their investment in Al-Salam Real Estate Investment Trust (KLSE:ALSREIT), since the last five years saw the share price fall 45%.
It’s worthwhile assessing if the company’s economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let’s do just that.
See our latest analysis for Al-Salam Real Estate Investment Trust
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.
While the share price declined over five years, Al-Salam Real Estate Investment Trust actually managed to increase EPS by an average of 10% 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.
Because of the sharp contrast between the EPS growth rate and the share price growth, we’re inclined to look to other metrics to understand the changing market sentiment around the stock.
We note that the dividend has fallen in the last five years, so that may have contributed to the share price decline. On top of that, revenue has declined by 5.1% per year over the half decade; that could be a red flag for some investors.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
It is of course excellent to see how Al-Salam Real Estate Investment Trust has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Al-Salam Real Estate Investment Trust’s financial health with this free report on its balance sheet.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Al-Salam Real Estate Investment Trust’s TSR for the last 5 years was -30%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It’s nice to see that Al-Salam Real Estate Investment Trust shareholders have received a total shareholder return of 18% over the last year. Of course, that includes the dividend. That certainly beats the loss of about 5% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. It’s always interesting to track share price performance over the longer term. But to understand Al-Salam Real Estate Investment Trust better, we need to consider many other factors. Case in point: We’ve spotted 5 warning signs for Al-Salam Real Estate Investment Trust you should be aware of, and 2 of them make us uncomfortable.
Of course Al-Salam Real Estate Investment 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 Malaysian exchanges.
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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.