Long term investing works well, but it doesn’t always work for each individual stock. We really hate to see fellow investors lose their hard-earned money. Spare a thought for those who held Diversified Healthcare Trust (NASDAQ:DHC) for five whole years – as the share price tanked 82%. Unfortunately the share price momentum is still quite negative, with prices down 8.3% in thirty days. Importantly, this could be a market reaction to the recently released financial results. You can check out the latest numbers in our company report. We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.
Given the past week has been tough on shareholders, let’s investigate the fundamentals and see what we can learn.
See our latest analysis for Diversified Healthcare Trust
Diversified Healthcare Trust wasn’t profitable in the last twelve months, it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Over five years, Diversified Healthcare Trust grew its revenue at 8.3% per year. That’s a pretty good rate for a long time period. So it is unexpected to see the stock down 13% per year in the last five years. The truth is that the growth might be below expectations, and investors are probably worried about the continual losses.
The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
NasdaqGS:DHC Earnings and Revenue Growth August 14th 2021
It’s probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. You can see what analysts are predicting for Diversified Healthcare Trust 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Diversified Healthcare Trust, it has a TSR of -75% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
While the broader market gained around 36% in the last year, Diversified Healthcare Trust shareholders lost 7.8% (even including dividends). 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. However, the loss over the last year isn’t as bad as the 12% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. It’s always interesting to track share price performance over the longer term. But to understand Diversified Healthcare Trust better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We’ve identified 1 warning sign with Diversified Healthcare Trust , and understanding them should be part of your investment process.
But note: Diversified Healthcare Trust 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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