Nasdaq
華爾街日報Earnings are growing at Auto Trader Group (LON:AUTO) but shareholders still don't like its prospects
The simplest way to benefit from a rising market is to buy an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Unfortunately the Auto Trader Group plc (LON:AUTO) share price slid 26% over twelve months. That's well below the market return of 25%. The silver lining (for longer term investors) is that the stock is still 13% higher than it was three years ago. The falls have accelerated recently, with the share price down 23% in the last three months.
If the past week is anything to go by, investor sentiment for Auto Trader Group isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 unfortunate twelve months during which the Auto Trader Group share price fell, it actually saw its earnings per share (EPS) improve by 7.6%. It's quite possible that growth expectations may have been unreasonable in the past.
The divergence between the EPS and the share price is quite notable, during the year. But we might find some different metrics explain the share price movements better.
Given the yield is quite low, at 1.8%, we doubt the dividend can shed much light on the share price. Auto Trader Group managed to grow revenue over the last year, which is usually a real positive. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Auto Trader Group is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think Auto Trader Group will earn in the future (free analyst consensus estimates)
A Different Perspective
While the broader market gained around 25% in the last year, Auto Trader Group shareholders lost 25% (even including dividends). 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. On the bright side, long term shareholders have made money, with a gain of 0.7% per year over half a decade. 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. Is Auto Trader Group cheap compared to other companies? These 3 valuation measures might help you decide.
Of course Auto Trader Group may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on British 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.