Reflecting on Ricardo's (LON:RCDO) Share Price Returns Over The Last Five Years
Generally speaking long term investing is the way to go. But no-one is immune from buying too high. Zooming in on an example, the Ricardo plc (LON:RCDO) share price dropped 61% in the last half decade. That is extremely sub-optimal, to say the least. And it's not just long term holders hurting, because the stock is down 48% in the last year. On top of that, the share price is down 6.0% in the last week.
View our latest analysis for Ricardo
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 five years over which the share price declined, Ricardo's earnings per share (EPS) dropped by 1.6% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 17% per year, over the period. This implies that the market is more cautious about the business these days. The low P/E ratio of 10.59 further reflects this reticence.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Dive deeper into Ricardo's key metrics by checking this interactive graph of Ricardo's earnings, revenue and cash flow.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Ricardo, it has a TSR of -55% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
While the broader market lost about 12% in the twelve months, Ricardo shareholders did even worse, losing 46% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 9.2% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Ricardo better, we need to consider many other factors. To that end, you should be aware of the 3 warning signs we've spotted with Ricardo .
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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 GB 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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