T
o justify the effort of selecting individual stocks, it's essential to aim for returns that surpass those from a market index fund. However, it's almost certain that you'll encounter some underperforming stocks in your portfolio. This has been the case for NexPoint Real Estate Finance (NYSE:NREF) shareholders over the last three years, with the share price down 25% compared to the market return of around 35%. Let's examine the underlying fundamentals and see if they've been consistent with returns.

    View our latest analysis for NexPoint Real Estate Finance. Benjamin Graham once said that in the short term, the market is a voting machine, but over the long term, it's a weighing machine. One way to assess sentiment around a company is by comparing earnings per share (EPS) with the share price. NexPoint Real Estate Finance became profitable within the last five years, which should typically lead to an increase in share price. However, given that the share price has dropped, we need to consider other metrics.

    The dividend seems healthy enough, but the uninspired reduction in revenue at 39% each year may have led shareholders to ditch the stock. This could make it challenging for the company to sustain its current earnings per share. The image below shows the company's revenue and earnings growth over time (click to see exact numbers). NYSE:NREF Earnings and Revenue Growth January 29th 2025

    We know that NexPoint Real Estate Finance has improved its bottom line lately, but what does the future hold? We recommend checking out this free report showing consensus forecasts. In addition to measuring share price return, investors should consider total shareholder return (TSR), which incorporates dividends and spin-offs. For NexPoint Real Estate Finance, the TSR is 11% over the last three years, exceeding its share price return. The dividend payments largely explain the divergence.

    The company's TSR was 15% over the last year, falling short of the market return of around 26%. However, the TSR over three years was only 4%, suggesting that the company's position is improving. If the business can justify the share price gain with improving fundamental data, there could be more gains to come. While market conditions can impact share prices, other factors are even more important. We've discovered 2 warning signs for NexPoint Real Estate Finance that you should be aware of before investing here.