Invitation Homes (NYSE:INVH) shareholders have earned a 22% CAGR over the last three years

By
Simply Wall St
Published
September 26, 2021
NYSE:INVH
Source: Shutterstock

By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, Invitation Homes Inc. (NYSE:INVH) shareholders have seen the share price rise 73% over three years, well in excess of the market return (51%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 47% , including dividends .

Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

Check out our latest analysis for Invitation Homes

While Invitation Homes 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.

In the last 3 years Invitation Homes saw its revenue grow at 5.8% per year. That's not a very high growth rate considering it doesn't make profits. The modest growth is probably broadly reflected in the share price, which is up 20%, per year over 3 years. Ultimately, the important thing is whether the company is trending to profitability. In this sort of situation it can be worth putting the stock on your watchlist. If it can become profitable, then even moderate revenue growth could grow profits quickly.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

earnings-and-revenue-growth
NYSE:INVH Earnings and Revenue Growth September 26th 2021

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. So we recommend checking out this free report showing consensus forecasts

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. As it happens, Invitation Homes' TSR for the last 3 years was 84%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Pleasingly, Invitation Homes' total shareholder return last year was 47%. And yes, that does include the dividend. That gain actually surpasses the 22% TSR it generated (per year) over three years. Given the track record of solid returns over varying time frames, it might be worth putting Invitation Homes on your watchlist. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 4 warning signs for Invitation Homes you should be aware of, and 1 of them is concerning.

Of course Invitation Homes may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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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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.
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