Shareholders 14% loss in CareTrust REIT (NYSE:CTRE) partly attributable to the company's decline in earnings over past three years
Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term CareTrust REIT, Inc. (NYSE:CTRE) shareholders, since the share price is down 25% in the last three years, falling well short of the market return of around 44%. In contrast, the stock price has popped 9.7% in the last thirty days.
While the last three years has been tough for CareTrust REIT 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.
See our latest analysis for CareTrust REIT
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
During the three years that the share price fell, CareTrust REIT's earnings per share (EPS) dropped by 52% each year. This fall in the EPS is worse than the 9% compound annual share price fall. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines. With a P/E ratio of 229.18, it's fair to say the market sees a brighter future for the business.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into CareTrust REIT's key metrics by checking this interactive graph of CareTrust REIT's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. In the case of CareTrust REIT, it has a TSR of -14% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
We regret to report that CareTrust REIT shareholders are down 17% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 14%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 5% per year over half a decade. 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. 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. Take risks, for example - CareTrust REIT has 4 warning signs we think you should be aware of.
We will like CareTrust 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.
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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.
