RFG Holdings Limited (JSE:RFG) shareholders should be happy to see the share price up 18% in the last quarter. But over the last half decade, the stock has not performed well. In fact, the share price is down 24%, which falls well short of the return you could get by buying an index fund.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
See our latest analysis for RFG Holdings
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.
While the share price declined over five years, RFG Holdings actually managed to increase EPS by an average of 16% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.
Because of the sharp contrast between the EPS growth rate and the share price growth, we're inclined to look to other metrics to understand the changing market sentiment around the stock.
In contrast to the share price, revenue has actually increased by 8.4% a year in the five year period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We know that RFG Holdings has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on RFG Holdings
What About Dividends?
As well as measuring the share price return, investors should also consider the 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of RFG Holdings, it has a TSR of -15% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!