For many, the main point of investing is to generate higher returns than the overall market. But the main game is to find enough winners to more than offset the losers At this point some shareholders may be questioning their investment in Ship Finance International Limited (NYSE:SFL), since the last five years saw the share price fall 28%. The silver lining is that the stock is up 2.4% in about a week.
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 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.
During the five years over which the share price declined, Ship Finance International's earnings per share (EPS) dropped by 6.3% each year. In this case, the EPS change is really very close to the share price drop of 6.4% a year. This implies that the market has had a fairly steady view of the stock. So it's fair to say the share price has been responding to changes in EPS.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
This free interactive report on Ship Finance International'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 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. As it happens, Ship Finance International's TSR for the last 5 years was 24%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Ship Finance International shareholders gained a total return of 2.8% during the year. But that was short of the market average. If we look back over five years, the returns are even better, coming in at 4.4% per year for five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. Importantly, we haven't analysed Ship Finance International's dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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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.