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It's understandable if you feel frustrated when a stock you own sees a lower share price. But sometimes a share price fall can have more to do with market conditions than the performance of the specific business. So while the AvalonBay Communities, Inc. (NYSE:AVB) share price is down 11% in the last year, the total return to shareholders (which includes dividends) was -8.9%. That's better than the market which declined 15% over the last year. However, the longer term returns haven't been so bad, with the stock down 8.9% in the last three years. It's down 23% in about a quarter. But this could be related to the weak market, which is down 13% in the same period.
Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
Check out our latest analysis for AvalonBay Communities
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).
During the unfortunate twelve months during which the AvalonBay Communities share price fell, it actually saw its earnings per share (EPS) improve by 41%. It could be that the share price was previously over-hyped.
It's surprising to see the share price fall so much, despite the improved EPS. So it's easy to justify a look at some other metrics.
AvalonBay Communities managed to grow revenue over the last year, which is usually a real positive. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
AvalonBay Communities is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for AvalonBay Communities in this interactive graph of future profit estimates.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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, AvalonBay Communities' TSR for the last 1 year was -8.9%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!