Gentrack Group's (NZSE:GTK) earnings growth rate lags the 82% CAGR delivered to shareholders

It might be of some concern to shareholders to see the Gentrack Group Limited (NZSE:GTK) share price down 13% in the last month. But over the last three years the stock has shone bright like a diamond. The longer term view reveals that the share price is up 498% in that period. Arguably, the recent fall is to be expected after such a strong rise. Only time will tell if there is still too much optimism currently reflected in the share price.

Since the long term performance has been good but there's been a recent pullback of 7.6%, let's check if the fundamentals match the share price.

View our latest analysis for Gentrack Group

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During three years of share price growth, Gentrack Group achieved compound earnings per share growth of 40% per year. This EPS growth is lower than the 82% average annual increase in the share price. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. That's not necessarily surprising considering the three-year track record of earnings growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 132.25.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Gentrack Group has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Gentrack Group's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

It's good to see that Gentrack Group has rewarded shareholders with a total shareholder return of 78% in the last twelve months. That's better than the annualised return of 39% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Gentrack Group (at least 1 which is significant) , and understanding them should be part of your investment process.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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

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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.