Low-cost index funds make it easy to achieve average market returns. But in any diversified portfolio of stocks, you'll see some that fall short of the average. For example, the Easterly Government Properties, Inc. (NYSE:DEA) share price return of 17% over three years lags the market return in the same period. Unfortunately, the share price has fallen 7.2% over twelve months.
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 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.
Easterly Government Properties was able to grow its EPS at 26% per year over three years, sending the share price higher. This EPS growth is higher than the 6% average annual increase in the share price. So it seems investors have become more cautious about the company, over time. Having said that, the market is still optimistic, given the P/E ratio of 107.43.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Easterly Government Properties has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
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 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Easterly Government Properties, it has a TSR of 36% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Investors in Easterly Government Properties had a tough year, with a total loss of 2.6% (including dividends), against a market gain of about 38%. 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. Longer term investors wouldn't be so upset, since they would have made 8%, each year, over five years. 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 Easterly Government Properties better, we need to consider many other factors. Even so, be aware that Easterly Government Properties is showing 4 warning signs in our investment analysis , and 1 of those is a bit unpleasant...
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.
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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