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Unless you borrow money to invest, the potential losses are limited. But if you pick the right business to buy shares in, you can make more than you can lose. Take, for example Tremont Mortgage Trust (NASDAQ:TRMT). Its share price is already up an impressive 236% in the last twelve months. On top of that, the share price is up 57% in about a quarter. In contrast, the longer term returns are negative, since the share price is 50% lower than it was three years ago.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Tremont Mortgage Trust was able to grow EPS by 39% in the last twelve months. The share price gain of 236% certainly outpaced the EPS growth. This indicates that the market is now more optimistic about the stock.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Tremont Mortgage Trust has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Tremont Mortgage Trust the TSR over the last year was 280%, 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
Pleasingly, Tremont Mortgage Trust's total shareholder return last year was 280%. That includes the value of the dividend. This recent result is much better than the 10% drop suffered by shareholders each year (on average) over the last three. It could well be that the business has turned around -- or else regained the confidence of investors. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Tremont Mortgage Trust (at least 1 which is significant) , and understanding them should be part of your investment process.
Of course Tremont Mortgage Trust 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.
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. 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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