The simplest way to benefit from a rising market is to buy an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in Rocket Companies, Inc. (NYSE:RKT) have tasted that bitter downside in the last year, as the share price dropped 47%. That's disappointing when you consider the market declined 12%. Rocket Companies hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. On top of that, the share price is down 13% in the last week.
After losing 13% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.
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).
Unhappily, Rocket Companies had to report a 55% decline in EPS over the last year. We note that the 47% share price drop is very close to the EPS drop. Therefore one could posit that the market has not become more concerned about the company, despite the lower EPS. Rather, the share price is remains a similar multiple of the EPS, suggesting the outlook remains the same.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. It might be well worthwhile taking a look at our free report on Rocket Companies' earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Rocket Companies the TSR over the last 1 year was -43%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
We doubt Rocket Companies shareholders are happy with the loss of 43% over twelve months (even including dividends). That falls short of the market, which lost 12%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. Putting aside the last twelve months, it's good to see the share price has rebounded by 5.9%, in the last ninety days. This could just be a bounce because the selling was too aggressive, but fingers crossed it's the start of a new trend. It's always interesting to track share price performance over the longer term. But to understand Rocket Companies better, we need to consider many other factors. Take risks, for example - Rocket Companies has 1 warning sign we think you should be aware of.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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