AutoNation's (NYSE:AN) five-year earnings growth trails the massive shareholder returns

Buying shares in the best businesses can build meaningful wealth for you and your family. While the best companies are hard to find, but they can generate massive returns over long periods. Don't believe it? Then look at the AutoNation, Inc. (NYSE:AN) share price. It's 340% higher than it was five years ago. If that doesn't get you thinking about long term investing, we don't know what will. Better yet, the share price has risen 4.2% in the last week. But this could be related to the buoyant market which is up about 2.3% in a week.

Since the stock has added US$267m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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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.

Over half a decade, AutoNation managed to grow its earnings per share at 29% a year. This EPS growth is reasonably close to the 34% average annual increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Rather, the share price has approximately tracked EPS growth.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It might be well worthwhile taking a look at our free report on AutoNation's earnings, revenue and cash flow.

A Different Perspective

AutoNation provided a TSR of 5.9% over the last twelve months. But that was short of the market average. If we look back over five years, the returns are even better, coming in at 34% per year for five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. 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. Even so, be aware that AutoNation is showing 3 warning signs in our investment analysis , and 1 of those is concerning...

Of course AutoNation may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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