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It is doubtless a positive to see that the Red Rock Resorts, Inc. (NASDAQ:RRR) share price has gained some 36% in the last three months. But that cannot eclipse the less-than-impressive returns over the last three years. After all, the share price is down 26% in the last three years, significantly under-performing the market.
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. 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.
Over the three years that the share price declined, Red Rock Resorts' earnings per share (EPS) dropped significantly, falling to a loss. Since the company has fallen to a loss making position, it's hard to compare the change in EPS with the share price change. However, we can say we'd expect to see a falling share price in this scenario.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Red Rock Resorts' earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
We've already covered Red Rock Resorts' share price action, but we should also mention its total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Red Rock Resorts' TSR of was a loss of 23% for the 3 years. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
Over the last year Red Rock Resorts shareholders have received a TSR of 5.2%. It's always nice to make money but this return falls short of the market return which was about 22% for the year. On the bright side, that's certainly better than the yearly loss of about 7% endured over the last three years, implying that the company is doing better recently. It could well be that the business is stabilizing. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Red Rock Resorts (at least 1 which is potentially serious) , and understanding them should be part of your investment process.
Red Rock Resorts is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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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