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American Finance Trust, Inc. (NASDAQ:AFIN) shareholders should be happy to see the share price up 18% in the last quarter. But that doesn’t change the fact that the returns over the last year have been less than pleasing. After all, the share price is down 24% in the last year, significantly under-performing the market.
Because American Finance Trust is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
American Finance Trust grew its revenue by 3.1% over the last year. While that may seem decent it isn’t great considering the company is still making a loss. Given this lacklustre revenue growth, the share price drop of 24% seems pretty appropriate. It’s important not to lose sight of the fact that profitless companies must grow. So remember, if you buy a profitless company then you risk being a profitless investor.
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. Dive deeper into the earnings by checking this interactive graph of American Finance Trust’s earnings, revenue and cash flow.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for American Finance Trust the TSR over the last year was -17%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Given that the market gained 5.7% in the last year, American Finance Trust shareholders might be miffed that they lost 17% (even including dividends). While the aim is to do better than that, it’s worth recalling that even great long-term investments sometimes underperform for a year or more. It’s great to see a nice little 18% rebound in the last three months. Let’s just hope this isn’t the widely-feared ‘dead cat bounce’ (which would indicate further declines to come). It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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. Thank you for reading.