Cato (NYSE:CATO shareholders incur further losses as stock declines 12% this week, taking three-year losses to 55%

It is a pleasure to report that the The Cato Corporation (NYSE:CATO) is up 38% in the last quarter. But that is small recompense for the exasperating returns over three years. In that time, the share price dropped 63%. So it is really good to see an improvement. The rise has some hopeful, but turnarounds are often precarious.

With the stock having lost 12% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

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Because Cato made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally hope to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

In the last three years Cato saw its revenue shrink by 6.1% per year. That is not a good result. The share price decline of 18% compound, over three years, is understandable given the company doesn't have profits to boast of, and revenue is moving in the wrong direction. Of course, it's the future that will determine whether today's price is a good one. We don't generally like to own companies that lose money and can't grow revenues. But any company is worth looking at when it makes a maiden profit.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

If you are thinking of buying or selling Cato stock, you should check out this FREE detailed report on its balance sheet.

What About The Total Shareholder Return (TSR)?

We've already covered Cato's share price action, but we should also mention its 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 and spin-offs. Dividends have been really beneficial for Cato shareholders, and that cash payout explains why its total shareholder loss of 55%, over the last 3 years, isn't as bad as the share price return.

A Different Perspective

While the broader market gained around 16% in the last year, Cato shareholders lost 30%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 5% 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. 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 learn about the 3 warning signs we've spotted with Cato (including 1 which is potentially serious) .

Of course Cato may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.