Shareholders in Alta Equipment Group (NYSE:ALTG) have lost 39%, as stock drops 10% this past week

For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Alta Equipment Group Inc. (NYSE:ALTG) shareholders have had that experience, with the share price dropping 43% in three years, versus a market return of about 90%. Furthermore, it's down 20% in about a quarter. That's not much fun for holders.

Since Alta Equipment Group has shed US$22m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

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Alta Equipment Group isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally hope to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

In the last three years, Alta Equipment Group saw its revenue grow by 8.8% per year, compound. That's a fairly respectable growth rate. Shareholders have seen the share price fall at 13% per year, for three years. This implies the market had higher expectations of Alta Equipment Group. With revenue growing at a solid clip, now might be the time to focus on the possibility that it will have a brighter future.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Alta Equipment Group, it has a TSR of -39% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Alta Equipment Group provided a TSR of 0.8% over the last twelve months. But that was short of the market average. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 4% endured over half a decade. So this might be a sign the business has turned its fortunes around. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. To that end, you should be aware of the 2 warning signs we've spotted with Alta Equipment Group .

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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 American 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.