The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But on a lighter note, a good company can see its share price rise well over 100%. For example, the Digital Realty Trust, Inc. (NYSE:DLR) share price has soared 105% in the last half decade. Most would be very happy with that.
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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.
Digital Realty Trust's earnings per share are down 9.3% per year, despite strong share price performance over five years. This means it's unlikely the market is judging the company based on earnings growth. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.
On the other hand, Digital Realty Trust's revenue is growing nicely, at a compound rate of 16% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
Digital Realty Trust is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Digital Realty Trust in this interactive graph of future profit estimates.
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Digital Realty Trust, it has a TSR of 152% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that Digital Realty Trust has rewarded shareholders with a total shareholder return of 16% in the last twelve months. And that does include the dividend. However, the TSR over five years, coming in at 20% per year, is even more impressive. Keeping this in mind, a solid next step might be to take a look at Digital Realty Trust's dividend track record. This free interactive graph is a great place to start.
Of course Digital Realty 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 US 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 email@example.com. 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.