The main aim of stock picking is to find the market-beating stocks. 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 Sabra Health Care REIT, Inc. (NASDAQ:SBRA), since the last five years saw the share price fall 21%.
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).
While the share price declined over five years, Sabra Health Care REIT actually managed to increase EPS by an average of 4.3% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Alternatively, growth expectations may have been unreasonable in the past.
Given that EPS has increased, but the share price has fallen, it's fair to say that market sentiment around the stock has become more negative. Having said that, if the EPS gains continue we'd expect the share price to improve, longer term.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Sabra Health Care REIT, it has a TSR of 20% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Sabra Health Care REIT shareholders are up 14% for the year (even including dividends). Unfortunately this falls short of the market return. The silver lining is that the gain was actually better than the average annual return of 4% per year over five year. This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand Sabra Health Care REIT better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Sabra Health Care REIT (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.
We will like Sabra Health Care REIT better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, 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.
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. 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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