It’s easy to match the overall market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by Colony Credit Real Estate, Inc. (NYSE:CLNC) shareholders over the last year, as the share price declined 17%. That falls noticeably short of the market return of around 27%. We wouldn’t rush to judgement on Colony Credit Real Estate because we don’t have a long term history to look at. There was little comfort for shareholders in the last week as the price declined a further 1.9%.
Colony Credit Real Estate isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn’t make profits, we’d generally expect to see good revenue growth. 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 twelve months, Colony Credit Real Estate increased its revenue by 35%. We think that is pretty nice growth. Unfortunately that wasn’t good enough to stop the share price dropping 17%. You might even wonder if the share price was previously over-hyped. But if revenue keeps growing, then at a certain point the share price would likely follow.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. So we recommend checking out this free report showing consensus 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. In the case of Colony Credit Real Estate, it has a TSR of -6.8% for the last year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While Colony Credit Real Estate shareholders are down 6.8% for the year (even including dividends) , the market itself is up 27%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. It’s worth noting that the last three months did the real damage, with a 8.9% decline. This probably signals that the business has recently disappointed shareholders – it will take time to win them back. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 3 warning signs we’ve spotted with Colony Credit Real Estate .
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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.
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