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Investors three-year losses grow to 14% as the stock sheds US$59m this past week

As an investor its worth striving to ensure your overall portfolio beats the market average. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. Unfortunately, that's been the case for longer term The Necessity Retail REIT, Inc. (NASDAQ:RTL) shareholders, since the share price is down 35% in the last three years, falling well short of the market return of around 44%. Furthermore, it's down 15% in about a quarter. That's not much fun for holders. Of course, this share price action may well have been influenced by the 16% decline in the broader market, throughout the period.

Since Necessity Retail REIT has shed US$59m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Check out our latest analysis for Necessity Retail REIT

Necessity Retail REIT isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

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Over three years, Necessity Retail REIT grew revenue at 5.1% per year. Given it's losing money in pursuit of growth, we are not really impressed with that. The stock dropped 10% during that time. If revenue growth accelerates, we might see the share price bounce. But the real upside for shareholders will be if the company can start generating profits.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

earnings-and-revenue-growth
earnings-and-revenue-growth

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. This free report showing analyst forecasts should help you form a view on Necessity Retail REIT

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Necessity Retail REIT, it has a TSR of -14% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Necessity Retail REIT shareholders are down 17% for the year (even including dividends), falling short of the market return. Meanwhile, the broader market slid about 9.8%, likely weighing on the stock. The three-year loss of 4% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Necessity Retail REIT (of which 1 is significant!) you should know about.

Necessity Retail REIT 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.

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.