Investors who have held DiamondRock Hospitality (NYSE:DRH) over the last five years have watched its earnings decline along with their investment
DiamondRock Hospitality Company (NYSE:DRH) shareholders should be happy to see the share price up 21% in the last month. But if you look at the last five years the returns have not been good. In fact, the share price is down 15%, which falls well short of the return you could get by buying an index fund.
While the last five years has been tough for DiamondRock Hospitality shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.
View our latest analysis for DiamondRock Hospitality
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
DiamondRock Hospitality became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics may better explain the share price move.
We don't think that the 1.3% is big factor in the share price, since it's quite small, as dividends go. It could be that the revenue decline of 13% per year is viewed as evidence that DiamondRock Hospitality is shrinking. That could explain the weak share price.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We know that DiamondRock Hospitality has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling DiamondRock Hospitality stock, you should check out this free report showing analyst profit forecasts.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, DiamondRock Hospitality's TSR for the last 5 years was -4.8%, 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
It's nice to see that DiamondRock Hospitality shareholders have received a total shareholder return of 3.7% over the last year. That's including the dividend. Notably the five-year annualised TSR loss of 0.9% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 1 warning sign for DiamondRock Hospitality that you should be aware of before investing here.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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