On average, over time, stock markets tend to rise higher. This makes investing attractive. But if you choose that path, you’re going to buy some stocks that fall short of the market. For example, the City Office REIT, Inc. (NYSE:CIO), share price is up over the last year, but its gain of 23% trails the market return. Having said that, the longer term returns aren’t so impressive, with stock gaining just 8.9% in three years.
City Office REIT 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. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last year City Office REIT saw its revenue grow by 20%. That’s a fairly respectable growth rate. The share price gain of 23% seems pretty muted, considering the growth. Its possible that shareholders had expected higher growth. However, if you can reasonably expect profits in the next few years, this stock might belong on your watchlist.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free report showing analyst forecasts should help you form a view on City Office REIT
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. We note that for City Office REIT the TSR over the last year was 32%, which is better than the share price return mentioned above. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It’s nice to see that City Office REIT shareholders have received a total shareholder return of 32% over the last year. That’s including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 9.4% per year), it would seem that the stock’s performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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 risks, for instance. Every company has them, and we’ve spotted 2 warning signs for City Office REIT you should know about.
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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