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For many, the main point of investing in the stock market is to achieve spectacular returns. While not every stock performs well, when investors win, they can win big. For example, the Onity Group Inc. (NYSE:ONIT) share price is up a whopping 316% in the last half decade, a handsome return for long term holders. This just goes to show the value creation that some businesses can achieve. We note the stock price is up 2.3% in the last seven days.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 five years of share price growth, Onity Group moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. Indeed, the Onity Group share price has gained 35% in three years. During the same period, EPS grew by 28% each year. This EPS growth is higher than the 11% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. This unenthusiastic sentiment is reflected in the stock's reasonably modest P/E ratio of 6.64.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Onity Group has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts .
A Different Perspective
We're pleased to report that Onity Group shareholders have received a total shareholder return of 20% over one year. Having said that, the five-year TSR of 33% a year, is even better. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. 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. Even so, be aware that Onity Group is showing 2 warning signs in our investment analysis , and 1 of those is a bit concerning...