The 21% return this week takes Onity Group's (NYSE:ONIT) shareholders one-year gains to 31%

We believe investing is smart because history shows that stock markets go higher in the long term. But not every stock you buy will perform as well as the overall market. For example, the Onity Group Inc. (NYSE:ONIT), share price is up over the last year, but its gain of 31% trails the market return. However, the longer term returns haven't been so impressive, with the stock up just 18% in the last three years.

Since the stock has added US$46m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for Onity Group

While Onity Group made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

Onity Group actually shrunk its revenue over the last year, with a reduction of 1.5%. The lacklustre gain of 31% over twelve months, is not a bad result given the falling revenue. We'd want to see progress to profitability before getting too interested in this stock.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

We know that Onity Group has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for Onity Group in this interactive graph of future profit estimates.

A Different Perspective

Onity Group provided a TSR of 31% over the year. That's fairly close to the broader market return. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 3%. Even if the share price growth slows down from here, there's a good chance that this is business worth watching in the long term. It's always interesting to track share price performance over the longer term. But to understand Onity Group better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Onity Group (of which 1 is potentially serious!) you should know about.

We will like Onity Group better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) 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 American exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.