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The past three years for Denny's (NASDAQ:DENN) investors has not been profitable

Denny's Corporation (NASDAQ:DENN) shareholders should be happy to see the share price up 23% in the last quarter. But that doesn't help the fact that the three year return is less impressive. Truth be told the share price declined 35% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.

So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.

View our latest analysis for Denny's

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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).

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Although the share price is down over three years, Denny's actually managed to grow EPS by 0.5% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

It looks to us like the market was probably too optimistic around growth three years ago. Looking to other metrics might better explain the share price change.

Arguably the revenue decline of 10% per year has people thinking Denny's is shrinking. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.

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

earnings-and-revenue-growth
earnings-and-revenue-growth

We know that Denny's 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 Denny's

A Different Perspective

While it's never nice to take a loss, Denny's shareholders can take comfort that their trailing twelve month loss of 16% wasn't as bad as the market loss of around 20%. Unfortunately, last year's performance may indicate unresolved challenges, given that it's worse than the annualised loss of 0.8% over the last half decade. Whilst Baron Rothschild does tell the investor "buy when there's blood in the streets, even if the blood is your own", buyers would need to examine the data carefully to be comfortable that the business itself is sound. It's always interesting to track share price performance over the longer term. But to understand Denny's better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 5 warning signs with Denny's (at least 3 which are significant) , and understanding them should be part of your investment process.

Of course Denny's may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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