Buying a low-cost index fund will get you the average market return. But in any diversified portfolio of stocks, you’ll see some that fall short of the average. Unfortunately for shareholders, while the Extended Stay America, Inc. (NASDAQ:STAY) share price is up 29% in the last three years, that falls short of the market return. Zooming in, the stock is actually down 0.7% in the last year.
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
Over the last three years, Extended Stay America failed to grow earnings per share, which fell 6.9% (annualized). Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.
We note that the dividend is higher than it was preciously, so that may have assisted the share price. Sometimes yield-chasing investors will flock to a company if they think the dividend can grow over time.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. This free report showing analyst forecasts should help you form a view on Extended Stay America
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Extended Stay America the TSR over the last 3 years was 48%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Extended Stay America’s TSR for the year was broadly in line with the market average, at 3.8%. To take a positive view, the gain is pleasing, and it sure beats annualized TSR loss of 1.2%, which was endured over half a decade. While ‘turnarounds seldom turn’ there are green shoots for Extended Stay America. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
Extended Stay America is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
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 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.