The 10% return this week takes City Lodge Hotels' (JSE:CLH) shareholders five-year gains to 80%
The simplest way to invest in stocks is to buy exchange traded funds. But in our experience, buying the right stocks can give your wealth a significant boost. For example, the City Lodge Hotels Limited (JSE:CLH) share price is up 63% in the last five years, slightly above the market return. Zooming in, the stock is up just 2.7% in the last year.
Since the stock has added R269m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
During the last half decade, City Lodge Hotels became profitable. That's generally thought to be a genuine positive, so investors may expect to see an increasing share price. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. We can see that the City Lodge Hotels share price is up 6.0% in the last three years. Meanwhile, EPS is up 40% per year. This EPS growth is higher than the 2.0% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It might be well worthwhile taking a look at our free report on City Lodge Hotels' earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, City Lodge Hotels' TSR for the last 5 years was 80%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
City Lodge Hotels shareholders gained a total return of 6.6% during the year. Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 13% per year for five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. 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. To that end, you should be aware of the 1 warning sign we've spotted with City Lodge Hotels .
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on South African 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.