RTL Group's (ETR:RRTL three-year decrease in earnings delivers investors with a 28% loss

For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term RTL Group S.A. (ETR:RRTL) shareholders, since the share price is down 43% in the last three years, falling well short of the market decline of around 9.3%. Shareholders have had an even rougher run lately, with the share price down 11% in the last 90 days.

If the past week is anything to go by, investor sentiment for RTL Group isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

View our latest analysis for RTL Group

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 three years that the share price fell, RTL Group's earnings per share (EPS) dropped by 32% each year. This fall in the EPS is worse than the 17% compound annual share price fall. So, despite the prior disappointment, shareholders must have some confidence the situation will improve, longer term.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that RTL Group has improved its bottom line lately, but is it going to grow revenue? Check if analysts think RTL Group will grow revenue in the future.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. We note that for RTL Group the TSR over the last 3 years was -28%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market gained around 10% in the last year, RTL Group shareholders lost 18% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 4% over the last half decade. 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. It's always interesting to track share price performance over the longer term. But to understand RTL Group better, we need to consider many other factors. Even so, be aware that RTL Group is showing 2 warning signs in our investment analysis , you should know about...

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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on German 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.