As an investor, mistakes are inevitable. But you have a problem if you face massive losses more than once in a while. So take a moment to sympathize with the long term shareholders of Real Estate Investar Group Limited (ASX:REV), who have seen the share price tank a massive 87% over a three year period. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. And over the last year the share price fell 67%, so we doubt many shareholders are delighted. Furthermore, it’s down 27% in about a quarter. That’s not much fun for holders.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.
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 yet make profits, we’d generally expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last three years Real Estate Investar Group saw its revenue shrink by 3.6% per year. That is not a good result. Having said that the 50% annualized share price decline highlights the risk of investing in unprofitable companies. We’re generally averse to companies with declining revenues, but we’re not alone in that. Don’t let a share price decline ruin your calm. You make better decisions when you’re calm.
The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.
You can see how its financial situation has strengthened (or weakened) over time in this free interactive graphic.
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. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Real Estate Investar Group hasn’t been paying dividends, but its TSR of -86% exceeds its share price return of -87%, implying it has raised capital at a discount, which is deemed to provide value to shareholders.
A Different Perspective
Real Estate Investar Group shareholders are down 63% for the year, but the broader market is up 7.6%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Shareholders have lost 48% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Warren Buffett famously said he likes to ‘buy when there is blood on the streets’, he also focusses on high quality stocks with solid prospects. 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.
We will like Real Estate Investar 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 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.