Avis Budget Group's (NASDAQ:CAR) five-year total shareholder returns outpace the underlying earnings growth

It might be of some concern to shareholders to see the Avis Budget Group, Inc. (NASDAQ:CAR) share price down 28% in the last month. But that doesn't change the fact that shareholders have received really good returns over the last five years. It's fair to say most would be happy with 140% the gain in that time. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. Only time will tell if there is still too much optimism currently reflected in the share price. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 56% decline over the last twelve months.

In light of the stock dropping 3.1% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.

View our latest analysis for Avis Budget Group

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, Avis Budget Group managed to grow its earnings per share at 38% a year. The EPS growth is more impressive than the yearly share price gain of 19% over the same period. So one could conclude that the broader market has become more cautious towards the stock. The reasonably low P/E ratio of 7.00 also suggests market apprehension.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

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

What About The Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Avis Budget Group's total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Avis Budget Group hasn't been paying dividends, but its TSR of 153% exceeds its share price return of 140%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

Investors in Avis Budget Group had a tough year, with a total loss of 56%, against a market gain of about 24%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 20%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. For example, we've discovered 2 warning signs for Avis Budget Group (1 is a bit concerning!) that you should be aware of before investing here.

But note: Avis Budget Group 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 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.