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While not a mind-blowing move, it is good to see that the Arcos Dorados Holdings Inc. (NYSE:ARCO) share price has gained 24% in the last three months. But that doesn't help the fact that the three year return is less impressive. After all, the share price is down 31% in the last three years, significantly under-performing the market.
While the last three years has been tough for Arcos Dorados Holdings shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.
Check out our latest analysis for Arcos Dorados Holdings
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During five years of share price growth, Arcos Dorados Holdings moved from a loss to profitability. We would usually expect to see the share price rise as a result. So it's worth looking at other metrics to try to understand the share price move.
We think that the revenue decline over three years, at a rate of 15% per year, probably had some shareholders looking to sell. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We know that Arcos Dorados Holdings has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Arcos Dorados Holdings will earn in the future (free profit forecasts).
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Arcos Dorados Holdings' total shareholder return (TSR) and its share price change, which we've covered above. 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. Dividends have been really beneficial for Arcos Dorados Holdings shareholders, and that cash payout explains why its total shareholder loss of 29%, over the last 3 years, isn't as bad as the share price return.
A Different Perspective
It's nice to see that Arcos Dorados Holdings shareholders have received a total shareholder return of 19% over the last year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 1.2% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Arcos Dorados Holdings better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Arcos Dorados Holdings (of which 1 can't be ignored!) you should know about.