Yahoo Finance Goosehead Insurance (NASDAQ:GSHD) shareholders are still up 115% over 5 years despite pulling back 8.6% in the past week
It might be of some concern to shareholders to see the Goosehead Insurance, Inc (NASDAQ:GSHD) share price down 24% in the last month. But that doesn't change the fact that the returns over the last five years have been very strong. In fact, the share price is 110% higher today. We think it's more important to dwell on the long term returns than the short term returns. Of course, that doesn't necessarily mean it's cheap now. While the returns over the last 5 years have been good, we do feel sorry for those shareholders who haven't held shares that long, because the share price is down 40% in the last three years.
In light of the stock dropping 8.6% 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.
See our latest analysis for Goosehead Insurance
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the five years of share price growth, Goosehead Insurance moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. In fact, the Goosehead Insurance stock price is 40% lower in the last three years. During the same period, EPS grew by 0.4% each year. So there seems to be a mismatch between the positive EPS growth and the change in the share price, which is down -16% per year.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider 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. Goosehead Insurance's TSR of 115% for the 5 years exceeded its share price return, because it has paid dividends.
A Different Perspective
Goosehead Insurance provided a TSR of 14% over the last twelve months. But that was short of the market average. On the bright side, the longer term returns (running at about 17% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. 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. To that end, you should be aware of the 1 warning sign we've spotted with Goosehead Insurance .
Goosehead Insurance is not the only stock that insiders are buying. For those who like to find winning investments 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
