If you want to compound wealth in the stock market, you can do so by buying an index fund. But investors can boost returns by picking market-beating companies to own shares in. For example, the NexPoint Real Estate Finance, Inc. (NYSE:NREF) share price is up 15% in the last 1 year, clearly besting the market decline of around 15% (not including dividends). That’s a solid performance by our standards! Note that businesses generally develop over the long term, so the returns over the last year might not reflect a long term trend.
Now it’s worth having a look at the company’s fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 the last year NexPoint Real Estate Finance grew its earnings per share (EPS) by 0.04%. This EPS growth is significantly lower than the 15% increase in the share price. This indicates that the market is now more optimistic about the stock.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It’s probably worth noting that the CEO is paid less than the median at similar sized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of NexPoint Real Estate Finance, it has a TSR of 26% for the last 1 year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
NexPoint Real Estate Finance boasts a total shareholder return of 26% for the last year (that includes the dividends) . Unfortunately the share price is down 3.5% over the last quarter. Shorter term share price moves often don’t signify much about the business itself. 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 learn about the 3 warning signs we’ve spotted with NexPoint Real Estate Finance (including 1 which doesn’t sit too well with us) .
We will like NexPoint Real Estate Finance better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, 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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