Passive investing in index funds can generate returns that roughly match the overall market. But you can significantly boost your returns by picking above-average stocks. To wit, the Retail Opportunity Investments Corp. (NASDAQ:ROIC) share price is 57% higher than it was a year ago, much better than the market return of around 36% (not including dividends) in the same period. That’s a solid performance by our standards! However, the stock hasn’t done so well in the longer term, with the stock only up 0.6% in three years.
Check out our latest analysis for Retail Opportunity Investments
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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, Retail Opportunity Investments actually saw its earnings per share drop 43%.
Given the share price gain, we doubt the market is measuring progress with EPS. Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.
Retail Opportunity Investments’ revenue actually dropped 5.3% over last year. So using a snapshot of key business metrics doesn’t give us a good picture of why the market is bidding up the stock.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
NasdaqGS:ROIC Earnings and Revenue Growth June 9th 2021
This free interactive report on Retail Opportunity Investments’ 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 Retail Opportunity Investments shareholders have received a total shareholder return of 58% over one year. Of course, that includes the dividend. That’s better than the annualised return of 1.4% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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 for instance, the ever-present spectre of investment risk. We’ve identified 4 warning signs with Retail Opportunity Investments (at least 1 which can’t be ignored) , and understanding them should be part of your investment process.
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.
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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. 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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