Passive investing in index funds can generate returns that roughly match the overall market. But if you pick the right individual stocks, you could make more than that. To wit, the Realogy Holdings Corp. (NYSE:RLGY) share price is 78% higher than it was a year ago, much better than the market return of around 23% (not including dividends) in the same period. That's a solid performance by our standards! Zooming out, the stock is actually down 40% in the last three years.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Over the last twelve months, Realogy Holdings actually shrank its EPS by 61%. This was, in part, due to extraordinary items impacting earning in the last twelve months.
This means it's unlikely the market is judging the company based on earnings growth. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.
We think that the revenue growth of 3.4% could have some investors interested. We do see some companies suppress earnings in order to accelerate revenue growth.
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. You can see what analysts are predicting for Realogy Holdings in this interactive graph of future profit estimates.
A Different Perspective
It's nice to see that Realogy Holdings shareholders have received a total shareholder return of 78% over the last year. Notably the five-year annualised TSR loss of 8% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. 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. Take risks, for example - Realogy Holdings has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.
Realogy Holdings is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
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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