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Generally speaking long term investing is the way to go. But no-one is immune from buying too high. For example, after five long years the NewRiver REIT plc (LON:NRR) share price is a whole 77% lower. We certainly feel for shareholders who bought near the top. The falls have accelerated recently, with the share price down 17% in the last three months.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
Check out our latest analysis for NewRiver REIT
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).
NewRiver REIT became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics may better explain the share price move.
We note that the dividend has fallen in the last five years, so that may have contributed to the share price decline. On top of that, revenue has declined by 5.5% per year over the half decade; that could be a red flag for some investors.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for NewRiver REIT 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. 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. We note that for NewRiver REIT the TSR over the last 5 years was -69%, 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 NewRiver REIT has rewarded shareholders with a total shareholder return of 4.6% in the last twelve months. That's including the dividend. That certainly beats the loss of about 11% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with NewRiver REIT (at least 1 which is potentially serious) , and understanding them should be part of your investment process.