There's no doubt that investing in the stock market is a truly brilliant way to build wealth. But if you choose that path, you're going to buy some stocks that fall short of the market. For example, the Omega Healthcare Investors, Inc. (NYSE:OHI), share price is up over the last year, but its gain of 37% trails the market return. And shareholders have also done well over the long term, with an increase of 34% in the last three years.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).
Over the last twelve months, Omega Healthcare Investors actually shrank its EPS by 56%.
Given the share price gain, we doubt the market is measuring progress with EPS. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.
Absent any improvement, we don't think a thirst for dividends is pushing up the Omega Healthcare Investors' share price. It saw it's revenue decline by 4.7% over twelve months. Usually that correlates with a lower share price, but let's face it, the gyrations of the market are sometimes only as clear as mud.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
This free interactive report on Omega Healthcare Investors' balance sheet strength 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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Omega Healthcare Investors the TSR over the last year was 49%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Omega Healthcare Investors shareholders gained a total return of 49% during the year. But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 11% over half a decade It is possible that returns will improve along with the business fundamentals. It's always interesting to track share price performance over the longer term. But to understand Omega Healthcare Investors better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 5 warning signs for Omega Healthcare Investors (of which 1 is a bit concerning!) you should know about.
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.
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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