Here's Why I Think NexPoint Real Estate Finance (NYSE:NREF) Is An Interesting Stock
It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in NexPoint Real Estate Finance (NYSE:NREF). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.
View our latest analysis for NexPoint Real Estate Finance
NexPoint Real Estate Finance's Improving Profits
Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So it's no surprise that some investors are more inclined to invest in profitable businesses. It is therefore awe-striking that NexPoint Real Estate Finance's EPS went from US$0.34 to US$1.70 in just one year. Even though that growth rate is unlikely to be repeated, that looks like a breakout improvement. Could this be a sign that the business has reached an inflection point?
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. I note that NexPoint Real Estate Finance's revenue from operations was lower than its revenue in the last twelve months, so that could distort my analysis of its margins. NexPoint Real Estate Finance maintained stable EBIT margins over the last year, all while growing revenue 368% to US$102m. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for NexPoint Real Estate Finance.
Are NexPoint Real Estate Finance Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
NexPoint Real Estate Finance top brass are certainly in sync, not having sold any shares, over the last year. But the bigger deal is that the Independent Director, Catherine Wood, paid US$56k to buy shares at an average price of US$18.56.
It's reassuring that NexPoint Real Estate Finance insiders are buying the stock, but that's not the only reason to think management are fair to shareholders. Specifically, the CEO is paid quite reasonably for a company of this size. I discovered that the median total compensation for the CEOs of companies like NexPoint Real Estate Finance with market caps between US$200m and US$800m is about US$1.7m.
NexPoint Real Estate Finance offered total compensation worth US$1.2m to its CEO in the year to . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.
Is NexPoint Real Estate Finance Worth Keeping An Eye On?
NexPoint Real Estate Finance's earnings have taken off like any random crypto-currency did, back in 2017. Better yet, we can observe insider buying and the chief executive pay looks reasonable. The strong EPS growth suggests NexPoint Real Estate Finance may be at an inflection point. For those chasing fast growth, then, I'd suggest to stock merits monitoring. However, before you get too excited we've discovered 3 warning signs for NexPoint Real Estate Finance (1 can't be ignored!) that you should be aware of.
The good news is that NexPoint Real Estate Finance is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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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.
