Reflecting on CarGurus' (NASDAQ:CARG) Share Price Returns Over The Last Year

While it may not be enough for some shareholders, we think it is good to see the CarGurus, Inc. (NASDAQ:CARG) share price up 25% in a single quarter. But that is minimal compensation for the share price under-performance over the last year. After all, the share price is down 32% in the last year, significantly under-performing the market.

Check out our latest analysis for CarGurus

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

Unhappily, CarGurus had to report a 42% decline in EPS over the last year. This fall in the EPS is significantly worse than the 32% the share price fall. So the market may not be too worried about the EPS figure, at the moment -- or it may have expected earnings to drop faster. Indeed, with a P/E ratio of 64.36 there is obviously some real optimism that earnings will bounce back.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free interactive report on CarGurus' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

Given that the market gained 11% in the last year, CarGurus shareholders might be miffed that they lost 32%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. Putting aside the last twelve months, it's good to see the share price has rebounded by 25%, in the last ninety days. This could just be a bounce because the selling was too aggressive, but fingers crossed it's the start of a new trend. 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. Case in point: We've spotted 1 warning sign for CarGurus you should be aware of.

But note: CarGurus may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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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