Most people feel a little frustrated if a stock they own goes down in price. But often it is not a reflection of the fundamental business performance. The Ready Capital Corporation (NYSE:RC) is down 12% over a year, but the total shareholder return is -1.8% once you include the dividend. That's better than the market which declined 10% over the last year. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 5.3% in three years.
Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the unfortunate twelve months during which the Ready Capital share price fell, it actually saw its earnings per share (EPS) improve by 2.3%. Of course, the situation might betray previous over-optimism about growth.
By glancing at these numbers, we'd posit that the the market had expectations of much higher growth, last year. But other metrics might shed some light on why the share price is down.
Ready Capital's dividend seems healthy to us, so we doubt that the yield is a concern for the market. From what we can see, revenue is pretty flat, so that doesn't really explain the share price drop. Unless, of course, the market was expecting a revenue uptick.
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 consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Ready Capital in this interactive graph of future profit estimates.
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 or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Ready Capital, it has a TSR of -1.8% for the last 1 year. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
While it's never nice to take a loss, Ready Capital shareholders can take comfort that , including dividends,their trailing twelve month loss of 1.8% wasn't as bad as the market loss of around 10%. Longer term investors wouldn't be so upset, since they would have made 10%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. 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. Take risks, for example - Ready Capital has 4 warning signs (and 3 which make us uncomfortable) we think you should know about.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are 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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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.