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Volatility 101: Should Rocky Mountain Chocolate Factory (NASDAQ:RMCF) Shares Have Dropped 22%?

Simply Wall St

Rocky Mountain Chocolate Factory, Inc. (NASDAQ:RMCF) shareholders should be happy to see the share price up 12% in the last quarter. But that doesn't change the fact that the returns over the last five years have been less than pleasing. In fact, the share price is down 22%, which falls well short of the return you could get by buying an index fund.

View our latest analysis for Rocky Mountain Chocolate Factory

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the five years over which the share price declined, Rocky Mountain Chocolate Factory's earnings per share (EPS) dropped by 7.0% each year. This fall in the EPS is worse than the 4.8% compound annual share price fall. So investors might expect EPS to bounce back -- or they may have previously foreseen the EPS decline.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

NasdaqGM:RMCF Past and Future Earnings, October 15th 2019

This free interactive report on Rocky Mountain Chocolate Factory's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Rocky Mountain Chocolate Factory the TSR over the last 5 years was -2.5%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Rocky Mountain Chocolate Factory shareholders are up 3.0% for the year (even including dividends) . Unfortunately this falls short of the market return. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 0.5% endured over half a decade. It could well be that the business is stabilizing. Importantly, we haven't analysed Rocky Mountain Chocolate Factory's dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.

We will like Rocky Mountain Chocolate Factory better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, 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.

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.