The simplest way to benefit from a rising market is to buy an index fund. But if you buy individual stocks, you can do both better or worse than that. Investors in Red Rock Resorts, Inc. (NASDAQ:RRR) have tasted that bitter downside in the last year, as the share price dropped 36%. That's well bellow the market return of 7.9%. However, the longer term returns haven't been so bad, with the stock down 3.1% in the last three years. The falls have accelerated recently, with the share price down 19% in the last three months.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the unfortunate twelve months during which the Red Rock Resorts share price fell, it actually saw its earnings per share (EPS) improve by 74%. It could be that the share price was previously over-hyped. It's surprising to see the share price fall so much, despite the improved EPS. So it's easy to justify a look at some other metrics.
With a low yield of 1.8% we doubt that the dividend influences the share price much. Red Rock Resorts's revenue is actually up 4.2% over the last year. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. So we recommend checking out this free report showing consensus forecasts
What about the Total Shareholder Return (TSR)?
We've already covered Red Rock Resorts's share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Dividends have been really beneficial for Red Rock Resorts shareholders, and that cash payout explains why its total shareholder loss of 35%, over the last year, isn't as bad as the share price return.
A Different Perspective
Over the last year, Red Rock Resorts shareholders took a loss of 35%, including dividends. In contrast the market gained about 7.9%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Fortunately the longer term story is brighter, with total returns averaging about 0.6% per year over three years. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
But note: Red Rock Resorts may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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.