Arbor Realty Trust’s (NYSE:ABR) five-year total shareholder returns outpace the underlying earnings growth
Arbor Realty Trust, Inc. (NYSE:ABR) shareholders might be concerned after seeing the share price drop 25% in the last quarter. But the silver lining is the stock is up over five years. Unfortunately its return of 59% is below the market return of 65%. Since the long term performance has been good but there’s been a recent pullback of 17%, let’s check if the fundamentals match the share price.
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. 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.
During five years of share price growth, Arbor Realty Trust achieved compound earnings per share (EPS) growth of 12% per year. This EPS growth is higher than the 10% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock. The reasonably low P/E ratio of 6.77 also suggests market apprehension.
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of Arbor Realty Trust’s earnings, revenue and cash flow.
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. We note that for Arbor Realty Trust the TSR over the last 5 years was 153%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
We regret to report that Arbor Realty Trust shareholders are down 22% for the year (even including dividends). Unfortunately, that’s worse than the broader market decline of 18%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. On the bright side, long term shareholders have made money, with a gain of 20% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Like risks, for instance. Every company has them, and we’ve spotted 3 warning signs for Arbor Realty Trust (of which 1 doesn’t sit too well with us!) you should know about.