Investors five-year losses continue as Sunstone Hotel Investors (NYSE:SHO) dips a further 3.9% this week, earnings continue to decline

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But in any portfolio, there will be mixed results between individual stocks. At this point some shareholders may be questioning their investment in Sunstone Hotel Investors, Inc. (NYSE:SHO), since the last five years saw the share price fall 42%. And some of the more recent buyers are probably worried, too, with the stock falling 24% in the last year. Even worse, it's down 13% in about a month, which isn't fun at all. However, we note the price may have been impacted by the broader market, which is down 9.6% in the same time period.

Since Sunstone Hotel Investors has shed US$81m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Sunstone Hotel Investors

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.

Sunstone Hotel Investors became profitable within the last five years. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics might give us a better handle on how its value is changing over time.

Arguably, the revenue drop of 23% a year for half a decade suggests that the company can't grow in the long term. That could explain the weak share price.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Sunstone Hotel Investors 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Sunstone Hotel Investors' TSR for the last 5 years was -32%, 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

Sunstone Hotel Investors shareholders are down 23% over twelve months (even including dividends), which isn't far from the market return of -22%. Unfortunately, last year's performance is a deterioration of an already poor long term track record, given the loss of 6% per year over the last five years. It will probably take a substantial improvement in the fundamental performance for the company to reverse this 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Sunstone Hotel Investors , and understanding them should be part of your investment process.

Sunstone Hotel Investors is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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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