We believe investing is smart because history shows that stock markets go higher in the long term. But not every stock you buy will perform as well as the overall market. Over the last year the Ellington Financial Inc. (NYSE:EFC) share price is up 22%, but that’s less than the broader market return. However, the longer term returns haven’t been so impressive, with the stock up just 12% in the last three years.
So let’s investigate and see if the longer term performance of the company has been in line with the underlying business’ progress.
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 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 last year Ellington Financial 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).
For starters, we suspect the share price has been buoyed by the dividend, which was increased during the year. Income-seeking investors probably helped bid up the stock price. Furthermore, the revenue growth of 2,360% probably also encouraged buyers.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We know that Ellington Financial has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Ellington Financial
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Ellington Financial the TSR over the last 1 year was 33%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We’re pleased to report that Ellington Financial shareholders have received a total shareholder return of 33% over one year. Of course, that includes the dividend. That’s better than the annualised return of 13% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. For example, we’ve discovered 4 warning signs for Ellington Financial (2 can’t be ignored!) that you should be aware of before investing here.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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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