If you want to compound wealth in the stock market, you can do so by buying an index fund. But you can significantly boost your returns by picking above-average stocks. For example, the Northstar Realty Europe Corp. (NYSE:NRE) share price is up 70% in the last year, clearly besting than the market return of around 1.5% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! It is also impressive that the stock is up 64% over three years, adding to the sense that it is a real winner.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the last year Northstar Realty Europe grew its earnings per share, moving from a loss to a profit. When a company is just on the edge of profitability it can be well worth considering other metrics in order to more precisely gauge growth (and therefore understand share price movements).
Revenue was pretty flat year on year, but maybe a closer look at the data can explain the market optimism.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
We know that Northstar Realty Europe has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Northstar Realty Europe’s balance sheet strength is a great place to start, if you want to investigate the stock further.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Northstar Realty Europe’s TSR for the last year was 77%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It’s nice to see that Northstar Realty Europe shareholders have gained 77% (in total) over the last year. That’s including the dividend. So this year’s TSR was actually better than the three-year TSR (annualized) of 24%. These improved returns may hint at some real business momentum, implying that now could be a great time to delve deeper. Keeping this in mind, a solid next step might be to take a look at Northstar Realty Europe’s dividend track record. This free interactive graph is a great place to start.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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. Thank you for reading.