One simple way to benefit from a rising market is to buy an index fund. But in any given year a good portion of stocks will fall short of that. One such example is Newmark Group, Inc. (NASDAQ:NMRK), which saw its share price fall 22% over a year, against a market decline of 20%. Longer term investors have fared much better, since the share price is up 7.5% in three years. In the last ninety days we’ve seen the share price slide 40%. Of course, this share price action may well have been influenced by the 19% decline in the broader market, throughout the period.
So let’s have a look and see if the longer term performance of the company has been in line with the underlying business’ progress.
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.
Newmark Group stole the show with its EPS rocketing, in the last year. The rate of growth may not be sustainable, but it is still really positive. As you can imagine, the share price action therefore perturbs us. Some different data might shed some more light on the situation.
Given the yield is quite low, at 1.3%, we doubt the dividend can shed much light on the share price. Newmark Group managed to grow revenue over the last year, which is usually a real positive. Since the fundamental metrics don’t readily explain the share price drop, there might be an opportunity if the market has overreacted.
The graphic below depicts how earnings and revenue have changed over time (unveil 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. You can see what analysts are predicting for Newmark Group in this interactive graph of future profit estimates.
A Different Perspective
With a loss of 22% in the last year (even including dividends), Newmark Group’s returns haven’t been too far from the market return of -20%. Looking back further paints a different picture, with the stock returning 4% per year over three years. One might wonder whether the recent sell-off could be an opportunity. It might be worth investigating the quality of the business. 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 – Newmark Group has 4 warning signs (and 3 which are a bit concerning) we think you should know about.
Newmark Group is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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.