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Introducing Resolute Forest Products (NYSE:RFP), The Stock That Slid 53% In The Last Five Years

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Simply Wall St
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Ideally, your overall portfolio should beat the market average. But every investor is virtually certain to have both over-performing and under-performing stocks. At this point some shareholders may be questioning their investment in Resolute Forest Products Inc. (NYSE:RFP), since the last five years saw the share price fall 53%. The falls have accelerated recently, with the share price down 16% in the last three months.

View our latest analysis for Resolute Forest Products

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, Resolute Forest Products moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.

Arguably, the revenue drop of 4.9% a year for half a decade suggests that the company can't grow in the long term. This has probably encouraged some shareholders to sell down the stock.

The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.

NYSE:RFP Income Statement, April 29th 2019
NYSE:RFP Income Statement, April 29th 2019

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized 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. You can see what analysts are predicting for Resolute Forest Products in this interactive graph of future profit estimates.

What about the Total Shareholder Return (TSR)?

We've already covered Resolute Forest Products'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. Resolute Forest Products hasn't been paying dividends, but its TSR of -45% exceeds its share price return of -53%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

Investors in Resolute Forest Products had a tough year, with a total loss of 9.9%, against a market gain of about 11%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. However, the loss over the last year isn't as bad as the 11% per annum loss investors have suffered over the last half decade. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. Before spending more time on Resolute Forest Products it might be wise to click here to see if insiders have been buying or selling shares.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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 editorial-team@simplywallst.com. 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.