It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But in contrast you can make much more than 100% if the company does well. For example, the Velocity Financial, Inc. (NYSE:VEL) share price has soared 245% in the last three years. Most would be happy with that. It's also good to see the share price up 46% over the last quarter. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report.
So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.
Velocity Financial became profitable within the last three years. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Velocity Financial has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Velocity Financial's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
We're pleased to report that Velocity Financial rewarded shareholders with a total shareholder return of 12% over the last year. That falls short of the 51% it has made, for shareholders, each year, over three years. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Velocity Financial you should know about.
But note: Velocity Financial may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American 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.