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Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Retail Opportunity Investments Corp. (NASDAQ:ROIC) shareholders have had that experience, with the share price dropping 13% in three years, versus a market return of about 45%.
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. 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).
During the unfortunate three years of share price decline, Retail Opportunity Investments actually saw its earnings per share (EPS) improve by 12% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past. We're actually a quite surprised to see the share price down while EPS have grown strongly. Therefore, we should look at some other metrics to try to understand why the market is disappointed.
We note that the dividend seems healthy enough, so that probably doesn't explain the share price drop. It's good to see that Retail Opportunity Investments has increased its revenue over the last three years. If the company can keep growing revenue, there may be an opportunity for investors. You might have to dig deeper to understand the recent share price weakness.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
We know that Retail Opportunity Investments has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Retail Opportunity Investments will earn in the future (free profit forecasts).
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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 or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Retail Opportunity Investments the TSR over the last 3 years was -2.0%, 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
It's nice to see that Retail Opportunity Investments shareholders have received a total shareholder return of 8.4% over the last year. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 6.5% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Importantly, we haven't analysed Retail Opportunity Investments's dividend history. This free visual report on its dividends is a must-read if you're thinking of 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.
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.