Stock pickers are generally looking for stocks that will outperform the broader market. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Crown Castle International Corp. (REIT) (NYSE:CCI) share price is up 69% in the last 5 years, clearly besting the market return of around 47% (ignoring dividends). On the other hand, the more recent gains haven’t been so impressive, with shareholders gaining just 22% , including dividends .
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 half a decade, Crown Castle International (REIT) managed to grow its earnings per share at 35% a year. The EPS growth is more impressive than the yearly share price gain of 11% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. Of course, with a P/E ratio of 67.01, the market remains optimistic.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Crown Castle International (REIT) the TSR over the last 5 years was 105%, 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
It’s good to see that Crown Castle International (REIT) has rewarded shareholders with a total shareholder return of 22% in the last twelve months. That’s including the dividend. That gain is better than the annual TSR over five years, which is 15%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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.
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