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It's easy to match the overall market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by AvalonBay Communities, Inc. (NYSE:AVB) shareholders over the last year, as the share price declined 24%. That's disappointing when you consider the market returned 26%. The silver lining (for longer term investors) is that the stock is still 3.9% higher than it was three years ago.
View our latest analysis for AvalonBay Communities
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).
Unhappily, AvalonBay Communities had to report a 35% decline in EPS over the last year. This fall in the EPS is significantly worse than the 24% the share price fall. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
This free interactive report on AvalonBay Communities' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for AvalonBay Communities the TSR over the last year was -21%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Investors in AvalonBay Communities had a tough year, with a total loss of 21% (including dividends), against a market gain of about 26%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 4% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Even so, be aware that AvalonBay Communities is showing 2 warning signs in our investment analysis , and 1 of those is potentially serious...