Safehold (NYSE:SAFE) shareholders have earned a 66% CAGR over the last three years

Safehold Inc. (NYSE:SAFE) shareholders might be concerned after seeing the share price drop 13% in the last quarter. But that doesn't change the fact that the returns over the last three years have been spectacular. In fact, the share price has taken off in that time, up 335%. As long term investors the recent fall doesn't detract all that much from the longer term story. The only way to form a view of whether the current price is justified is to consider the merits of the business itself.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

See our latest analysis for Safehold

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During three years of share price growth, Safehold achieved compound earnings per share growth of 88% per year. This EPS growth is higher than the 63% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. Having said that, the market is still optimistic, given the P/E ratio of 69.96.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

It is of course excellent to see how Safehold has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Safehold's financial health with this free report on its balance sheet.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. We note that for Safehold the TSR over the last 3 years was 356%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Safehold produced a TSR of 16% over the last year. It's always nice to make money but this return falls short of the market return which was about 33% for the year. At least the longer term returns (running at about 66% a year, are better. We prefer focus on longer term returns, as they are usually a more meaningful indication of the underlying business. It's always interesting to track share price performance over the longer term. But to understand Safehold better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Safehold (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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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