Stock Analysis

Share Price Aside, Ready Capital (NYSE:RC) Has Delivered Shareholders A 3.9% Return.

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NYSE:RC
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While it may not be enough for some shareholders, we think it is good to see the Ready Capital Corporation (NYSE:RC) share price up 15% in a single quarter. But that cannot eclipse the less-than-impressive returns over the last three years. Truth be told the share price declined 26% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.

View our latest analysis for Ready Capital

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the three years that the share price fell, Ready Capital's earnings per share (EPS) dropped by 27% each year. In comparison the 10% compound annual share price decline isn't as bad as the EPS drop-off. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

earnings-per-share-growth
NYSE:RC Earnings Per Share Growth December 11th 2020

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

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. As it happens, Ready Capital's TSR for the last 3 years was 3.9%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Over the last year, Ready Capital shareholders took a loss of 11%, including dividends. In contrast the market gained about 24%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Investors are up over three years, booking 1.3% per year, much better than the more recent returns. The recent sell-off could be an opportunity if the business remains sound, so it may be worth checking the fundamental data for signs of a long-term growth trend. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Ready Capital (at least 2 which shouldn't be ignored) , and understanding them should be part of your investment process.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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What are the risks and opportunities for Ready Capital?

Ready Capital Corporation operates as a real estate finance company in the United States.

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Rewards

  • Price-To-Earnings ratio (6.7x) is below the US market (15.3x)

  • Revenue is forecast to grow 9.6% per year

  • Earnings grew by 76% over the past year

Risks

  • Earnings are forecast to decline by an average of 1.6% per year for the next 3 years

  • Debt is not well covered by operating cash flow

  • Shareholders have been diluted in the past year

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