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Imagine Owning Royal Bank of Scotland Group (LON:RBS) While The Price Tanked 67%

Simply Wall St

Generally speaking long term investing is the way to go. But no-one is immune from buying too high. For example, after five long years the The Royal Bank of Scotland Group plc (LON:RBS) share price is a whole 67% lower. That's an unpleasant experience for long term holders. And it's not just long term holders hurting, because the stock is down 55% in the last year. The falls have accelerated recently, with the share price down 52% in the last three months. Of course, this share price action may well have been influenced by the 25% decline in the broader market, throughout the period.

See our latest analysis for Royal Bank of Scotland Group

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. 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.

Royal Bank of Scotland Group became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics may better explain the share price move.

We note that the dividend has remained healthy, so that wouldn't really explain the share price drop. However, revenue has declined at a compound annual rate of 4.5% per year. With revenue weak, and increased payouts of cash, the market might be taking the view that its best days are behind it.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

LSE:RBS Income Statement April 8th 2020

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. So we recommend checking out this free report showing consensus forecasts

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Royal Bank of Scotland Group's TSR for the last 5 years was -63%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We regret to report that Royal Bank of Scotland Group shareholders are down 51% for the year (even including dividends) . Unfortunately, that's worse than the broader market decline of 18%. 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 18% 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. 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. Case in point: We've spotted 5 warning signs for Royal Bank of Scotland Group you should be aware of, and 1 of them is a bit concerning.

Royal Bank of Scotland Group 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 GB exchanges.

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.

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. Thank you for reading.