Generally speaking long term investing is the way to go. But unfortunately, some companies simply don’t succeed. To wit, the The Royal Bank of Scotland Group plc (LON:RBS) share price managed to fall 60% over five long years. That’s not a lot of fun for true believers. We also note that the stock has performed poorly over the last year, with the share price down 45%. The falls have accelerated recently, with the share price down 38% in the last three months. However, one could argue that the price has been influenced by the general market, which is down 15% in the same timeframe.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During five years of share price growth, Royal Bank of Scotland Group moved from a loss to profitability. Most would consider that to be a good thing, so it’s counter-intuitive to see the share price declining. Other metrics may better explain the share price move.
We note that the dividend has remained healthy, so that wouldn’t really explain the share price drop. It could be that the revenue decline of 4.5% per year is viewed as evidence that Royal Bank of Scotland Group is shrinking. With revenue weak, and increased payouts of cash, the market might be taking the view that its best days are behind it.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. This free report showing analyst forecasts should help you form a view on Royal Bank of Scotland Group
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Royal Bank of Scotland Group’s TSR for the last 5 years was -54%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
We regret to report that Royal Bank of Scotland Group shareholders are down 38% for the year (even including dividends) . Unfortunately, that’s worse than the broader market decline of 9.0%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 14% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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 4 warning signs for Royal Bank of Scotland Group (of which 1 is a bit concerning!) you should know about.
Royal Bank of Scotland 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 GB exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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. Thank you for reading.