U.S. markets close in 41 minutes
  • S&P 500

    3,632.67
    -111.85 (-2.99%)
     
  • Dow 30

    29,221.05
    -705.89 (-2.36%)
     
  • Nasdaq

    10,649.29
    -424.02 (-3.83%)
     
  • Russell 2000

    1,706.27
    -46.24 (-2.64%)
     
  • Crude Oil

    92.80
    +4.35 (+4.92%)
     
  • Gold

    1,702.80
    -18.00 (-1.05%)
     
  • Silver

    20.11
    -0.55 (-2.64%)
     
  • EUR/USD

    0.9735
    -0.0060 (-0.61%)
     
  • 10-Yr Bond

    3.8830
    +0.0570 (+1.49%)
     
  • GBP/USD

    1.1065
    -0.0104 (-0.93%)
     
  • USD/JPY

    145.4290
    +0.3610 (+0.25%)
     
  • BTC-USD

    19,463.67
    -569.53 (-2.84%)
     
  • CMC Crypto 200

    444.07
    -10.95 (-2.41%)
     
  • FTSE 100

    6,991.09
    -6.18 (-0.09%)
     
  • Nikkei 225

    27,116.11
    -195.19 (-0.71%)
     

ONE Group Hospitality's (NASDAQ:STKS) investors will be pleased with their fantastic 405% return over the last five years

·3 min read

It hasn't been the best quarter for The ONE Group Hospitality, Inc. (NASDAQ:STKS) shareholders, since the share price has fallen 17% in that time. But over five years returns have been remarkably great. In fact, during that period, the share price climbed 405%. Impressive! So we don't think the recent decline in the share price means its story is a sad one. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 26% drop, in the last year.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

View our latest analysis for ONE Group Hospitality

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the five years of share price growth, ONE Group Hospitality moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. Indeed, the ONE Group Hospitality share price has gained 156% in three years. Meanwhile, EPS is up 86% per year. This EPS growth is higher than the 37% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat. This unenthusiastic sentiment is reflected in the stock's reasonably modest P/E ratio of 9.60.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth
earnings-per-share-growth

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

A Different Perspective

While the broader market lost about 14% in the twelve months, ONE Group Hospitality shareholders did even worse, losing 26%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Longer term investors wouldn't be so upset, since they would have made 38%, 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with ONE Group Hospitality (at least 1 which is potentially serious) , and understanding them should be part of your investment process.

There are plenty of other companies that have insiders buying up shares. You probably do 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here