For many, the main point of investing is to generate higher returns than the overall market. But the main game is to find enough winners to more than offset the losers So we wouldn’t blame long term Alexander’s, Inc. (NYSE:ALX) shareholders for doubting their decision to hold, with the stock down 47% over a half decade. Furthermore, it’s down 10% in about a quarter. That’s not much fun for holders. Of course, this share price action may well have been influenced by the 5.2% decline in the broader market, throughout the period.
So let’s have a look and see if the longer term performance of the company has been in line with the underlying business’ progress.
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
While the share price declined over five years, Alexander’s actually managed to increase EPS by an average of 8.1% per year. So it doesn’t seem like EPS is a great guide to understanding how the market is valuing the stock. Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.
Due to the lack of correlation between the EPS growth and the falling share price, it’s worth taking a look at other metrics to try to understand the share price movement.
The steady dividend doesn’t really explain why the share price is down. It could be that the revenue decline of 3.2% per year is viewed as evidence that Alexander’s is shrinking. With revenue weak, and increased payouts of cash, the market might be taking the view that its best days are behind it.
The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
It’s probably worth noting that the CEO is paid less than the median at similar sized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. If you are thinking of buying or selling Alexander’s stock, you should check out this free report showing analyst profit forecasts.
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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Alexander’s’ TSR for the last 5 years was -29%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Although it hurts that Alexander’s returned a loss of 12% in the last twelve months, the broader market was actually worse, returning a loss of 15%. Unfortunately, last year’s performance may indicate unresolved challenges, given that it’s worse than the annualised loss of 5% over the last half decade. While some investors do well specializing in buying companies that are struggling (but nonetheless undervalued), don’t forget that Buffett said that ‘turnarounds seldom turn’. It’s always interesting to track share price performance over the longer term. But to understand Alexander’s better, we need to consider many other factors. Take risks, for example – Alexander’s has 4 warning signs (and 2 which can’t be ignored) we think you should know about.
But note: Alexander’s 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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