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If you buy and hold a stock for many years, you'd hope to be making a profit. Better yet, you'd like to see the share price move up more than the market average. But Arcos Dorados Holdings Inc. (NYSE:ARCO) has fallen short of that second goal, with a share price rise of 50% over five years, which is below the market return. The last year has been disappointing, with the stock price down 30% in that time.
Arcos Dorados Holdings isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over the last half decade Arcos Dorados Holdings' revenue has actually been trending down at about 1.8% per year. The falling revenue is arguably somewhat reflected in the lacklustre return of 8.4% per year over that time. Arguably that's not bad given the soft revenue and loss-making position. Of course, a closer look at the bottom line - and any available analyst forecasts - could reveal an opportunity (if they point to future growth).
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
If you are thinking of buying or selling Arcos Dorados Holdings stock, you should check out this FREE detailed report on its balance sheet.
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 and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Arcos Dorados Holdings' TSR for the last 5 years was 57%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
While the broader market gained around 21% in the last year, Arcos Dorados Holdings shareholders lost 29% (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. Longer term investors wouldn't be so upset, since they would have made 9.4%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Arcos Dorados Holdings better, we need to consider many other factors. Even so, be aware that Arcos Dorados Holdings is showing 3 warning signs in our investment analysis , and 1 of those is a bit unpleasant...
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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 US exchanges.
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. 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.
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