It hasn't been the best quarter for W. P. Carey Inc. (NYSE:WPC) shareholders, since the share price has fallen 11% in that time. But at least the stock is up over the last three years. In that time, it is up 34%, which isn't bad, but not amazing either.
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.
Over the last three years, W. P. Carey failed to grow earnings per share, which fell 4.0% (annualized).
Based on these numbers, we think that the decline in earnings per share may not be a good representation of how the business has changed over the years. Therefore, it makes sense to look into other metrics.
Interestingly, the dividend has increased over time; so that may have given the share price a boost. It could be that the company is reaching maturity and dividend investors are buying for the yield. On top of that, revenue grew at a rate of 7.3% per year, and it's likely investors interpret that as pointing to a brighter future.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. So it makes a lot of sense to check out what analysts think W. P. Carey will earn in the future (free profit forecasts).
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, W. P. Carey's TSR for the last 3 years was 60%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
W. P. Carey shareholders have received returns of 25% over twelve months (even including dividends) , which isn't far from the general market return. That gain looks pretty satisfying, and it is even better than the five-year TSR of 8.8% per year. Even if the share price growth slows down from here, there's a good chance that this is business worth watching in the long term. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with W. P. Carey , and understanding them should be part of your investment process.
W. P. Carey is not the only stock that insiders are 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.
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