Invitation Homes Inc. (NYSE:INVH) shareholders might be concerned after seeing the share price drop 11% in the last month. But at least the stock is up over the last five years. Unfortunately its return of 45% is below the market return of 48%. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 18% decline over the last twelve months.
With that in mind, it’s worth seeing if the company’s underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
View our latest analysis for Invitation Homes
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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 last half decade, Invitation Homes became profitable. That would generally be considered a positive, so we’d expect the share price to be up. Since the company was unprofitable five years ago, but not three years ago, it’s worth taking a look at the returns in the last three years, too. Indeed, the Invitation Homes share price has gained 5.7% in three years. During the same period, EPS grew by 51% each year. This EPS growth is higher than the 1.9% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat. Of course, with a P/E ratio of 57.83, the market remains optimistic.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It is of course excellent to see how Invitation Homes has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Invitation Homes’ financial health with this free report on its balance sheet.
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, Invitation Homes’ TSR for the last 5 years was 60%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Although it hurts that Invitation Homes returned a loss of 17% in the last twelve months, the broader market was actually worse, returning a loss of 25%. Longer term investors wouldn’t be so upset, since they would have made 10%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. 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. For instance, we’ve identified 4 warning signs for Invitation Homes (1 is a bit unpleasant) that you should be aware of.
But note: Invitation Homes may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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.
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