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Did Preferred Apartment Communities's (NYSE:APTS) Share Price Deserve to Gain 37%?

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The main point of investing for the long term is to make money. But more than that, you probably want to see it rise more than the market average. But Preferred Apartment Communities, Inc. (NYSE:APTS) has fallen short of that second goal, with a share price rise of 37% over five years, which is below the market return. But if you include dividends then the return is market-beating. Unfortunately the share price is down 16% in the last year.

Check out our latest analysis for Preferred Apartment Communities

Preferred Apartment Communities wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually expect strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

For the last half decade, Preferred Apartment Communities can boast revenue growth at a rate of 37% per year. That's well above most pre-profit companies. While long-term shareholders have made money, the 6.4% per year gain over five years fall short of the market return. That's surprising given the strong revenue growth. It could be that the stock was previously over-priced - but if you're looking for underappreciated growth stocks, these numbers indicate that there might be an opportunity here.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

NYSE:APTS Income Statement, January 20th 2020
NYSE:APTS Income Statement, January 20th 2020

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. So it makes a lot of sense to check out what analysts think Preferred Apartment Communities will earn in the future (free profit forecasts).

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Preferred Apartment Communities the TSR over the last 5 years was 88%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

While the broader market gained around 26% in the last year, Preferred Apartment Communities shareholders lost 9.9% (even including dividends) . However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 13%, 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for Preferred Apartment Communities (of which 1 shouldn't be ignored!) you should know about.

Preferred Apartment Communities is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

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. Thank you for reading.