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Avis Budget Group, Inc. (NASDAQ:CAR) shareholders might be rather concerned because the share price has dropped 32% in the last month. But over five years returns have been remarkably great. In fact, during that period, the share price climbed 328%. Impressive! So we don't think the recent decline in the share price means its story is a sad one. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 50% drop, in the last year.
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
During five years of share price growth, Avis Budget Group achieved compound earnings per share (EPS) growth of 19% per year. This EPS growth is slower than the share price growth of 34% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
This free interactive report on Avis Budget Group's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
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 350% exceeds its share price return of 328%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
Avis Budget Group shareholders are down 50% for the year, but the market itself is up 12%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 35%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth 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. For example, we've discovered 1 warning sign for Avis Budget Group that you should be aware of before investing here.