By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Custodian REIT Plc (LON:CREI) share price is up 12% in the last three years, clearly besting the market return of around 4.5% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 7.8% in the last year , including dividends .
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.
During three years of share price growth, Custodian REIT achieved compound earnings per share growth of 3.2% per year. We note that the 3.8% yearly (average) share price gain isn't too far from the EPS growth rate. Coincidence? Probably not. That suggests that the market sentiment around the company hasn't changed much over that time. Rather, the share price has approximately tracked EPS growth.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
This free interactive report on Custodian REIT's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
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. In the case of Custodian REIT, it has a TSR of 30% 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
Custodian REIT's TSR for the year was broadly in line with the market average, at 7.8%. That gain looks pretty satisfying, and it is even better than the five-year TSR of 7.6% per year. Even if the share price growth slows down from here, there's a good chance that this is business worth watching in the long term. Before spending more time on Custodian REIT it might be wise to click here to see if insiders have been buying or selling shares.
We will like Custodian REIT better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.