Did Changing Sentiment Drive Real Estate Investar Group’s (ASX:REV) Share Price Down A Painful 84%?

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It’s nice to see the Real Estate Investar Group Limited (ASX:REV) share price up 11% in a week. But only the myopic could ignore the astounding decline over three years. Indeed, the share price is down a whopping 84% in the last three years. So we’re relieved for long term holders to see a bit of uplift. Of course the real question is whether the business can sustain a turnaround.

We really feel for shareholders in this scenario. It’s a good reminder of the importance of diversification, and it’s worth keeping in mind there’s more to life than money, anyway.

See our latest analysis for Real Estate Investar Group

Real Estate Investar Group isn’t a profitable company, so it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. When a company doesn’t make profits, we’d generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last three years Real Estate Investar Group saw its revenue shrink by 20% per year. That means its revenue trend is very weak compared to other loss making companies. The swift share price decline at an annual compound rate of 46%, reflects this weak fundamental performance. We prefer leave it to clowns to try to catch falling knives, like this stock. There is a good reason that investors often describe buying a sharply falling stock price as ‘trying to catch a falling knife’. Think about it.

Depicted in the graphic below, you’ll see revenue and earnings over time. If you want more detail, you can click on the chart itself.

ASX:REV Income Statement, June 10th 2019
ASX:REV Income Statement, June 10th 2019

Take a more thorough look at Real Estate Investar Group’s financial health with this free report on its balance sheet.

What about the Total Shareholder Return (TSR)?

Investors should note that there’s a difference between Real Estate Investar Group’s total shareholder return (TSR) and its share price change, which we’ve covered above. 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. We note that Real Estate Investar Group’s TSR, at -82% is higher than its share price return of -84%. When you consider it hasn’t been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.

A Different Perspective

Over the last year, Real Estate Investar Group shareholders took a loss of 31%. In contrast the market gained about 10%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. However, the loss over the last year isn’t as bad as the 44% per annum loss investors have suffered over the last three years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. If you would like to research Real Estate Investar Group in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

Of course Real Estate Investar Group may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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 editorial-team@simplywallst.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.