The worst outcome, after buying a company’s stock (assuming there is no leverage), would be to lose all the money you invested. But when you choose a business that is truly successful, you can Make more than 100%. Namely, the Group 1 Automobile, Inc. The stock price (NYSE: GPI) has jumped 260% in the past three years. Most would be happy with that. Last week, the stock price fell about 1.6%.
With that in mind, it’s worth considering whether the underlying fundamentals of the business have been driving long-term performance, or if there are any gaps.
Discover our latest analysis for Group 1 Automotive
In his essay Graham-and-Doddsville super-investors Warren Buffett described how stock prices don’t always rationally reflect a company’s value. A flawed but reasonable way to gauge how sentiment is changing around a company is to compare earnings per share (EPS) with the stock price.
Group 1 Automotive was able to increase its EPS by 40% per year over three years, driving up the share price. This EPS growth is lower than the average annual increase of 53% in the share price. So it’s fair to assume that the market has a better opinion of the company than it did three years ago. It’s quite common for investors to fall in love with a company after a few years of solid progress.
The image below shows how EPS has tracked over time (if you click on the image you can see more detail).
We know that Group 1 Automotive has improved its results over the past three years, but what does the future hold? If you are thinking of buying or selling Group 1 auto stocks, you should check out this FREE detailed report on its balance sheet.
What about dividends?
In addition to measuring stock price performance, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any discounted demerger or capital increase, as well as any dividend, on the basis of the assumption that dividends are reinvested. So, for companies that pay a generous dividend, the TSR is often much higher than the return on the share price. Note that for Group 1 Automobile the TSR over the last 3 years was 270%, which is better than the return on the share price mentioned above. This is largely the result of his dividend payments!
A different perspective
It is good to see that Group 1 Automotive has rewarded its shareholders with a total shareholder return of 60% over the past twelve months. This includes the dividend. This gain is better than the annual TSR over five years which is 21%. Therefore, it seems that sentiment around the company has been positive lately. Since stock price dynamics remain strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. While it is worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider, for example, the ever-present specter of investment risk. We have identified 3 warning signs with Group 1 Automotive (at least 1 which is potentially serious), and understanding them should be part of your investment process.
For those who like to find winning investments this free list of growing companies with recent insider buys, might be just the ticket.
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks that currently trade on the US stock exchanges.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.