These days it’s easy to simply buy an index fund, and your returns should (roughly) match the market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the Retail Value Inc. (NYSE:RVI) share price is 20% higher than it was a year ago, much better than the market return of around 2.9% (not including dividends) in the same period. So that should have shareholders smiling. Retail Value hasn’t been listed for long, so it’s still not clear if it is a long term winner.
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 Retail Value grew its earnings per share, moving from a loss to a profit.
We think the growth looks very prospective, so we’re not surprised the market liked it too. Generally speaking the profitability inflection point is a great time to research a company closely, lest you miss an opportunity to profit.
You can see how EPS has changed over time in the image below.
We know that Retail Value has improved its bottom line lately, but is it going to grow revenue? If you’re interested, you could check this free report showing consensus revenue forecasts.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. In the case of Retail Value, it has a TSR of 25% for the last year. That exceeds its share price return that we previously mentioned. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Retail Value shareholders should be happy with the total gain of 25% over the last twelve months , including dividends . The more recent returns haven’t been as impressive as the longer term returns, coming in at just 2.2%. It seems likely the market is waiting on fundamental developments with the business before pushing the share price higher (or lower). Before spending more time on Retail Value it might be wise to click here to see if insiders have been buying or selling shares.
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.