Investing in Goosehead Insurance (NASDAQ:GSHD) three years ago would have delivered you a 121% gain

It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But if you buy shares in a really great company, you can more than double your money. For instance the Goosehead Insurance, Inc (NASDAQ:GSHD) share price is 109% higher than it was three years ago. Most would be happy with that. In the last week shares have slid back 2.9%.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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 three years of share price growth, Goosehead Insurance achieved compound earnings per share growth of 318% per year. The average annual share price increase of 28% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock. Having said that, the market is still optimistic, given the P/E ratio of 60.64.

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

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. It might be well worthwhile taking a look at our free report on Goosehead Insurance's earnings, revenue and cash flow.

What About The Total Shareholder Return (TSR)?

Investors should note that there's a difference between Goosehead Insurance's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Dividends have been really beneficial for Goosehead Insurance shareholders, and that cash payout contributed to why its TSR of 121%, over the last 3 years, is better than the share price return.

A Different Perspective

While the broader market gained around 18% in the last year, Goosehead Insurance shareholders lost 27%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 6% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Goosehead Insurance better, we need to consider many other factors. Even so, be aware that Goosehead Insurance is showing 2 warning signs in our investment analysis , and 1 of those is concerning...

Goosehead Insurance is not the only stock that insiders are buying. For those who like to find lesser know companies this free list of growing companies with recent insider purchasing, could be just the ticket.

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.