Newmark Group (NASDAQ:NMRK) shareholders notch a 27% CAGR over 5 years, yet earnings have been shrinking

When you buy a stock there is always a possibility that it could drop 100%. But on a lighter note, a good company can see its share price rise well over 100%. Long term Newmark Group, Inc. (NASDAQ:NMRK) shareholders would be well aware of this, since the stock is up 213% in five years. On top of that, the share price is up 21% in about a quarter. But this could be related to the strong market, which is up 16% in the last three months.

Since the stock has added US$197m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, Newmark Group actually saw its EPS drop 7.3% per year.

This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We doubt the modest 0.9% dividend yield is attracting many buyers to the stock. In contrast revenue growth of 4.7% per year is probably viewed as evidence that Newmark Group is growing, a real positive. In that case, the company may be sacrificing current earnings per share to drive growth.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We know that Newmark Group has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Newmark Group

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Newmark Group, it has a TSR of 229% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Newmark Group provided a TSR of 10.0% over the last twelve months. But that return falls short of the market. On the bright side, the longer term returns (running at about 27% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. 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. Even so, be aware that Newmark Group is showing 1 warning sign in our investment analysis , you should know about...

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

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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.