Would Shareholders Who Purchased Ricardo's (LON:RCDO) Stock Three Years Be Happy With The Share price Today?

If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. Long term Ricardo plc (LON:RCDO) shareholders know that all too well, since the share price is down considerably over three years. Unfortunately, they have held through a 63% decline in the share price in that time. And more recent buyers are having a tough time too, with a drop of 57% in the last year. And the share price decline continued over the last week, dropping some 8.9%.

See our latest analysis for Ricardo

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Over the three years that the share price declined, Ricardo's earnings per share (EPS) dropped significantly, falling to a loss. Extraordinary items contributed to this situation. Due to the loss, it's not easy to use EPS as a reliable guide to the business. But it's safe to say we'd generally expect the share price to be lower as a result!

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

This free interactive report on Ricardo's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Ricardo's total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Dividends have been really beneficial for Ricardo shareholders, and that cash payout explains why its total shareholder loss of 61%, over the last 3 years, isn't as bad as the share price return.

A Different Perspective

While the broader market lost about 5.5% in the twelve months, Ricardo shareholders did even worse, losing 56%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 9% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Ricardo better, we need to consider many other factors. For example, we've discovered 2 warning signs for Ricardo (1 is a bit concerning!) that you should be aware of before investing here.

We will like Ricardo better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

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

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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. 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.
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