Buying a low-cost index fund will get you the average market return. But across the board there are plenty of stocks that underperform the market. Unfortunately for shareholders, while the AutoNation, Inc. (NYSE:AN) share price is up 17% in the last three years, that falls short of the market return. In the last year the stock has gained 8.4%.
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).
Over the last three years, AutoNation failed to grow earnings per share, which fell 5.5% (annualized).
This means it’s unlikely the market is judging the company based on earnings growth. Given this situation, it makes sense to look at other metrics too.
You can only imagine how long term shareholders feel about the declining revenue trend (slipping at 1.4% per year). What’s clear is that historic earnings and revenue aren’t matching up with the share price action, very well. So you might have to dig deeper to get a grasp of the situation
The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
AutoNation is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for AutoNation in this interactive graph of future profit estimates.
A Different Perspective
AutoNation shareholders are up 8.4% for the year. But that return falls short of the market. But at least that’s still a gain! Over five years the TSR has been a reduction of 1.2% per year, over five years. It could well be that the business is stabilizing. 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. Consider for instance, the ever-present spectre of investment risk. We’ve identified 3 warning signs with AutoNation , 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 purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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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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