Auto Trader Group (LON:AUTO) sheds 11% this week, as yearly returns fall more in line with earnings growth
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It's been a soft week for Auto Trader Group plc (LON:AUTO) shares, which are down 11%. But the silver lining is the stock is up over five years. In that time, it is up 41%, which isn't bad, but is below the market return of 51%.
Although Auto Trader Group has shed UK£868m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
During five years of share price growth, Auto Trader Group achieved compound earnings per share (EPS) growth of 7.8% per year. So the EPS growth rate is rather close to the annualized share price gain of 7% per year. That suggests that the market sentiment around the company hasn't changed much over that time. In fact, the share price seems to largely reflect the EPS growth.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Auto Trader Group has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Auto Trader Group's TSR for the last 5 years was 49%, 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
Auto Trader Group shareholders are down 2.0% for the year (even including dividends), but the market itself is up 7.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 8% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Before deciding if you like the current share price, check how Auto Trader Group scores on these 3 valuation metrics.