Low-cost index funds make it easy to achieve average market returns. But in any diversified portfolio of stocks, you’ll see some that fall short of the average. That’s what has happened with the Penske Automotive Group, Inc. (NYSE:PAG) share price. It’s up 10% over three years, but that is below the market return. Zooming in, the stock is up a respectable 5.2% in the last year.
See our latest analysis for Penske Automotive 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 way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
During the three years of share price growth, Penske Automotive Group actually saw its earnings per share (EPS) drop 2.6% per year.
The comparison of the modestly falling earnings per share, and the relatively resilient share price, suggests the market is less cautious about the stock, these days. Ultimately, though, we don’t think it can maintain share price gains without turning around the EPS growth.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into Penske Automotive Group’s key metrics by checking this interactive graph of Penske Automotive Group’s earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
We’ve already covered Penske Automotive Group’s share price action, but we should also mention its total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Its history of dividend payouts mean that Penske Automotive Group’s TSR of 19% over the last 3 years is better than the share price return.
A Different Perspective
Penske Automotive Group shareholders are up 6.9% for the year. Unfortunately this falls short of the market return. The silver lining is that the gain was actually better than the average annual return of 2.1% per year over five year. It is possible that returns will improve along with the business fundamentals. 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 3 warning signs for Penske Automotive Group you should be aware of, and 1 of them is a bit unpleasant.
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.
This article by Simply Wall St is general in nature. 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.
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