The most you can lose on any stock (assuming you don’t use leverage) is 100% of your money. But on a lighter note, a good company can see its share price rise well over 100%. One great example is Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) which saw its share price drive 110% higher over five years. Also pleasing for shareholders was the 11% gain in the last three months. But this move may well have been assisted by the reasonably buoyant market (up 15% in 90 days).
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 five years of share price growth, Ruth’s Hospitality Group achieved compound earnings per share (EPS) growth of 15% per year. This EPS growth is reasonably close to the 16% average annual increase in the share price. This indicates that investor sentiment towards the company has not changed a great deal. Rather, the share price has approximately tracked EPS growth.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Ruth’s Hospitality Group has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Ruth’s Hospitality 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). 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Ruth’s Hospitality Group, it has a TSR of 129% for the last 5 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
Ruth’s Hospitality Group’s TSR for the year was broadly in line with the market average, at 4.6%. We should note here that the five-year TSR is more impressive, at 18% per year. More recently, the share price growth has slowed. But it has to be said the overall picture is one of good long term and short term performance. Arguably that makes Ruth’s Hospitality Group a stock worth watching. Before forming an opinion on Ruth’s Hospitality Group you might want to consider these 3 valuation metrics.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.