Investing in stocks inevitably means buying into some companies that perform poorly. But the long term shareholders of Red Lion Hotels Corporation (NYSE:RLH) have had an unfortunate run in the last three years. Unfortunately, they have held through a 68% decline in the share price in that time. And more recent buyers are having a tough time too, with a drop of 65% in the last year. On top of that, the share price is down 57% in the last week. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
Red Lion Hotels isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Over the last three years, Red Lion Hotels's revenue dropped 6.9% per year. That is not a good result. With revenue in decline, and profit but a dream, we can understand why the share price has been declining at 32% per year. Having said that, if growth is coming in the future, now may be the low ebb for the company. We'd be pretty wary of this one until it makes a profit, because we don't specialize in finding turnaround situations.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
Investors in Red Lion Hotels had a tough year, with a total loss of 65%, against a market gain of about 15%. 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 14% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
But note: Red Lion Hotels 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.
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