When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, you can make far more than 100% on a really good stock. For instance, the price of REA Group Limited (ASX:REA) stock is up an impressive 120% over the last five years. It’s also good to see the share price up 17% over the last quarter. This could be related to the recent financial results, released recently – you can catch up on the most recent data by reading our company report.
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. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
REA Group’s earnings per share are down 6.9% per year, despite strong share price performance over five years. Essentially, it doesn’t seem likely that investors are focused on EPS. Because earnings per share don’t seem to match up with the share price, we’ll take a look at other metrics instead.
We doubt the modest 1.1% dividend yield is attracting many buyers to the stock. In contrast revenue growth of 16% per year is probably viewed as evidence that REA Group is growing, a real positive. It’s quite possible that management are prioritizing revenue growth over EPS growth at the moment.
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. If you are thinking of buying or selling REA Group stock, you should check out this free report showing analyst profit forecasts.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for REA Group the TSR over the last 5 years was 136%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It’s good to see that REA Group has rewarded shareholders with a total shareholder return of 16% in the last twelve months. Of course, that includes the dividend. However, that falls short of the 19% TSR per annum it has made for shareholders, each year, over five years. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
We will like REA Group 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 AU 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 firstname.lastname@example.org. 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.