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It's easy to match the overall market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Unfortunately the Sunstone Hotel Investors, Inc. (NYSE:SHO) share price slid 23% over twelve months. That falls noticeably short of the market return of around 0.1%. Longer term investors have fared much better, since the share price is up 12% in three years. The falls have accelerated recently, with the share price down 11% in the last three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Even though the Sunstone Hotel Investors share price is down over the year, its EPS actually improved. It's quite possible that growth expectations may have been unreasonable in the past. It's surprising to see the share price fall so much, despite the improved EPS. But we might find some different metrics explain the share price movements better.
The fact that the dividend has fallen is probably weighing on the share price, as it implies some form of business stress. To make matters worse revenue is down 3.7% over twelve months. This too could help explain the market's newfound pessimism about the stock.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
Sunstone Hotel Investors is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So we recommend checking out this free report showing consensus forecasts
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Sunstone Hotel Investors the TSR over the last year was -19%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Sunstone Hotel Investors shareholders are down 19% for the year (even including dividends), but the market itself is up 0.1%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 3.1%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Keeping this in mind, a solid next step might be to take a look at Sunstone Hotel Investors's dividend track record. This free interactive graph is a great place to start.
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.
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.