Group 1 Automotive (NYSE:GPI) stock performs better than its underlying earnings growth over last five years

By
Simply Wall St
Published
April 20, 2022
NYSE:GPI
Source: Shutterstock

Group 1 Automotive, Inc. (NYSE:GPI) shareholders might be concerned after seeing the share price drop 11% in the last month. But that doesn't change the fact that the returns over the last five years have been very strong. In fact, the share price is 142% higher today. To some, the recent pullback wouldn't be surprising after such a fast rise. Ultimately business performance will determine whether the stock price continues the positive long term trend.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

View our latest analysis for Group 1 Automotive

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Over half a decade, Group 1 Automotive managed to grow its earnings per share at 41% a year. This EPS growth is higher than the 19% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock. The reasonably low P/E ratio of 4.67 also suggests market apprehension.

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

earnings-per-share-growth
NYSE:GPI Earnings Per Share Growth April 20th 2022

We know that Group 1 Automotive has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Group 1 Automotive stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Group 1 Automotive's TSR for the last 5 years was 156%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that Group 1 Automotive shareholders have received a total shareholder return of 11% over one year. Of course, that includes the dividend. However, that falls short of the 21% TSR per annum it has made for shareholders, each year, over five years. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. It's always interesting to track share price performance over the longer term. But to understand Group 1 Automotive better, we need to consider many other factors. To that end, you should learn about the 3 warning signs we've spotted with Group 1 Automotive (including 1 which is significant) .

If you are like me, then you will 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 US exchanges.

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