Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Unfortunately the Colony Credit Real Estate, Inc. ( NYSE:CLNC ) share price slid 17% over twelve months. That contrasts poorly with the market return of 5.2%. We wouldn't rush to judgement on Colony Credit Real Estate because we don't have a long term history to look at. The silver lining is that the stock is up 3.4% in about a week.
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Colony Credit Real Estate isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Colony Credit Real Estate grew its revenue by 138% over the last year. That's well above most other pre-profit companies. Given the revenue growth, the share price drop of 17% seems quite harsh. Our sympathies to shareholders who are now underwater. On the bright side, if this company is moving profits in the right direction, top-line growth like that could be an opportunity. Our brains have evolved to think in linear fashion, so there's value in learning to recognize exponential growth. We are, in some ways, simply the wisest of the monkeys.
Depicted in the graphic below, you'll see revenue and earnings over time. If you want more detail, you can click on the chart itself.
It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. So we recommend checking out this free report showing consensus forecasts
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. As it happens, Colony Credit Real Estate's TSR for the last year was -8.2%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While Colony Credit Real Estate shareholders are down 8.2% for the year (even including dividends), the market itself is up 5.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. It's worth noting that the last three months did the real damage, with a 8.7% decline. So it seems like some holders have been dumping the stock of late - and that's not bullish. Importantly, we haven't analysed Colony Credit Real Estate's dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.
Of course Colony Credit Real Estate may not be the best stock to buy . So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com . 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.