Many investors define successful investing as beating the market average over the long term. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Apple Hospitality REIT, Inc. (NYSE:APLE) shareholders have had that experience, with the share price dropping 20% in three years, versus a market return of about 50%. It’s up 1.2% in the last seven days.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the unfortunate three years of share price decline, Apple Hospitality REIT actually saw its earnings per share (EPS) improve by 19% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.
Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.
Given the healthiness of the dividend payments, we doubt that they’ve concerned the market. It’s good to see that Apple Hospitality REIT has increased its revenue over the last three years. But it’s not clear to us why the share price is down. It might be worth diving deeper into the fundamentals, lest an opportunity goes begging.
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. You can see what analysts are predicting for Apple Hospitality REIT in this interactive graph of future profit estimates.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. As it happens, Apple Hospitality REIT’s TSR for the last 3 years was -2.5%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Over the last year Apple Hospitality REIT shareholders have received a TSR of 22%. It’s always nice to make money but this return falls short of the market return which was about 31% for the year. The silver lining is that the recent rise is far preferable to the annual loss of 0.8% that shareholders have suffered over the last three years. We hope the turnaround in fortunes continues. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought.