The past three years for Deutsche Real Estate (FRA:DRE2) investors has not been profitable
Many investors define successful investing as beating the market average over the long term. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Deutsche Real Estate AG (FRA:DRE2) shareholders have had that experience, with the share price dropping 50% in three years, versus a market decline of about 9.7%. And the ride hasn’t got any smoother in recent times over the last year, with the price 24% lower in that time. Furthermore, it’s down 10% in about a quarter. That’s not much fun for holders. This could be related to the recent financial results – you can catch up on the most recent data by reading our company report.
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.
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Deutsche Real Estate became profitable within the last five years. We would usually expect to see the share price rise as a result. So given the share price is down it’s worth checking some other metrics too.
The modest 0.7% dividend yield is unlikely to be guiding the market view of the stock. We note that, in three years, revenue has actually grown at a 15% annual rate, so that doesn’t seem to be a reason to sell shares. It’s probably worth investigating Deutsche Real Estate further; while we may be missing something on this analysis, there might also be an opportunity.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time .
Investors in Deutsche Real Estate had a tough year, with a total loss of 23% (including dividends), against a market gain of about 5.0%. 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. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 5% over the last half decade. We realise that Baron Rothschild has said investors should “buy when there is blood on the streets”, but we caution that investors should first be sure they are buying a high quality business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We’ve spotted 3 warning signs for Deutsche Real Estate you should be aware of, and 2 of them make us uncomfortable.
Source link
