Restaurant Group (LON:RTN) earnings and shareholder returns have been trending downwards for the last five years, but the stock rallies 19% this past week

This week we saw the The Restaurant Group plc (LON:RTN) share price climb by 19%. But that doesn't change the fact that the returns over the last half decade have been disappointing. In that time the share price has delivered a rude shock to holders, who find themselves down 78% after a long stretch. So is the recent increase sufficient to restore confidence in the stock? Not yet. But it could be that the fall was overdone.

While the last five years has been tough for Restaurant Group shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

Check out our latest analysis for Restaurant Group

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics might give us a better handle on how its value is changing over time.

The revenue decline of 2.0% isn't too bad. But if the market expected durable top line growth, then that could explain the share price weakness.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. You can see what analysts are predicting for Restaurant Group in this interactive graph of future profit estimates.

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Restaurant Group's total shareholder return (TSR) and its share price return. 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 and spin-offs. Restaurant Group's TSR of was a loss of 64% for the 5 years. That wasn't as bad as its share price return, because it has paid dividends.

A Different Perspective

Restaurant Group shareholders are down 29% for the year, but the market itself is up 3.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 10% 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. Even so, be aware that Restaurant Group is showing 4 warning signs in our investment analysis , and 1 of those is potentially serious...

Restaurant Group is not the only stock insiders are buying. So take a peek at this free list of growing companies with 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. 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.