It's understandable if you feel frustrated when a stock you own sees a lower share price. But often it is not a reflection of the fundamental business performance. So while the European Residential Real Estate Investment Trust (CVE:ERE.UN) share price is down 21% in the last year, the total return to shareholders (which includes dividends) was -18%. And that total return actually beats the market return of -22%. European Residential Real Estate Investment Trust may have better days ahead, of course; we've only looked at a one year period. Unfortunately the last month hasn't been any better, with the share price down 36%. We do note, however, that the broader market is down 19% in that period, and this may have weighed on the share price.
European Residential Real Estate Investment Trust isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In the last year European Residential Real Estate Investment Trust saw its revenue grow by 100%. That's a strong result which is better than most other loss making companies. While the share price is down 21% in the last year, not too bad given the weak market. The relative resilience of the share price might reflect the strong revenue growth. For us, this sort of situation smells of opportunity - the share price is down but the revenue is up. Either way, we'd say the mismatch between the revenue growth and the share price justifies a closer look.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. You can see what analysts are predicting for European Residential Real Estate Investment Trust in this interactive graph of future profit estimates.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. As it happens, European Residential Real Estate Investment Trust's TSR for the last year was -18%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While they no doubt would have preferred make a profit, at least European Residential Real Estate Investment Trust shareholders didn't do too badly in the last year. Their loss of 18% , including dividends, actually beat the broader market, which lost around 22%. However, the problem arose in the last three months, which saw the share price drop 31%. The recent drop implies that investors are increasingly averse to the stock -- quite possibly due to a deterioration of the business. In times of uncertainty we usually try to focus on the long term fundamental business metrics. 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. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for European Residential Real Estate Investment Trust (of which 1 is a bit concerning!) you should know about.
European Residential Real Estate Investment Trust is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
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.
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