By buying an index fund, you can roughly match the market return with ease. But if you pick the right individual stocks, you could make more than that. For example, the Global Medical REIT Inc. (NYSE:GMRE) share price is up 71% in the last three years, clearly besting the market return of around 59% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 11% in the last year , including dividends .
Now it’s worth having a look at the company’s fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Over the last three years, Global Medical REIT failed to grow earnings per share, which fell 74% (annualized). In this instance, recent extraordinary items impacted the earnings.
This means it’s unlikely the market is judging the company based on earnings growth. Therefore, we think it’s worth considering other metrics as well.
The dividend is no better now than it was three years ago, so that is unlikely to have driven the share price higher. But it’s far more plausible that the revenue growth of 29% per year is viewed as evidence that Global Medical REIT is growing. It could be that investors are content with the revenue growth on the basis that the company isn’t really focussed on profits just yet. And that might explain the higher price.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Take a more thorough look at Global Medical REIT’s financial health with this free report on its balance sheet.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. We note that for Global Medical REIT the TSR over the last 3 years was 110%, which is better than the share price return mentioned above. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Global Medical REIT shareholders are up 11% for the year (even including dividends). But that return falls short of the market. On the bright side, the longer term returns (running at about 19% a year, over half a decade) look better. Maybe the share price is just taking a breather while the business executes on its growth strategy. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. To that end, you should be aware of the 2 warning signs we’ve spotted with Global Medical REIT .
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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. 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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