Easy Come, Easy Go: How Restaurant Group (LON:RTN) Shareholders Got Unlucky And Saw 82% Of Their Cash Evaporate

We think intelligent long term investing is the way to go. But that doesn't mean long term investors can avoid big losses. For example, after five long years the The Restaurant Group plc (LON:RTN) share price is a whole 82% lower. That is extremely sub-optimal, to say the least. And it's not just long term holders hurting, because the stock is down 52% in the last year. Even worse, it's down 11% in about a month, which isn't fun at all.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

Check out our latest analysis for Restaurant Group

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During five years of share price growth, Restaurant Group moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics might give us a better handle on how its value is changing over time.

The steady dividend doesn't really explain why the share price is down. It's not immediately clear to us why the stock price is down but further research might provide some answers.

The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. You can see what analysts are predicting for Restaurant Group in this interactivegraph of future profit estimates.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Restaurant Group the TSR over the last 5 years was -70%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While the broader market gained around 2.9% in the last year, Restaurant Group shareholders lost 30% (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 21% over the last half decade. We realise that Buffett 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 businesses. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Restaurant Group by clicking this link.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this freelist of growing companies that insiders are buying.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Thank you for reading.