Yahoo Finance If You Had Bought Auto Trader Group (LON:AUTO) Shares Three Years Ago You'd Have Earned 61% Returns
By buying an index fund, you can roughly match the market return with ease. But if you choose individual stocks with prowess, you can make superior returns. For example, the Auto Trader Group plc (LON:AUTO) share price is up 61% in the last three years, clearly besting the market decline of around 9.0% (not including dividends).
View our latest analysis for Auto Trader Group
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the three years of share price growth, Auto Trader Group actually saw its earnings per share (EPS) drop 0.4% per year.
Based on these numbers, we think that the decline in earnings per share may not be a good representation of how the business has changed over the years. Therefore, it makes sense to look into other metrics.
Do you think that shareholders are buying for the 1.4% per annum revenue growth trend? We don't. While we don't have an obvious theory to explain the share price rise, a closer look at the data might be enlightening.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. So we recommend checking out this free report showing consensus forecasts
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Auto Trader Group's total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Auto Trader Group's TSR of 66% for the 3 years exceeded its share price return, because it has paid dividends.
A Different Perspective
While it's never nice to take a loss, Auto Trader Group shareholders can take comfort that their trailing twelve month loss of 1.0% wasn't as bad as the market loss of around 2.7%. Longer term investors wouldn't be so upset, since they would have made 6%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. 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. Take risks, for example - Auto Trader Group has 1 warning sign we think you should be aware of.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
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. 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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