Investing in Avis Budget Group (NASDAQ:CAR) three years ago would have delivered you a 967% gain

Avis Budget Group, Inc. (NASDAQ:CAR) shareholders might be concerned after seeing the share price drop 24% in the last month. But that doesn't change the fact that the returns over the last three years have been spectacular. Indeed, the share price is up a whopping 967% in that time. Arguably, the recent fall is to be expected after such a strong rise. The only way to form a view of whether the current price is justified is to consider the merits of the business itself. It really delights us to see such great share price performance for investors.

Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

Check out our latest analysis for Avis Budget Group

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Avis Budget Group was able to grow its EPS at 159% per year over three years, sending the share price higher. The average annual share price increase of 120% is actually lower than the EPS growth. So it seems investors have become more cautious about the company, over time. We'd venture the lowish P/E ratio of 2.63 also reflects the negative sentiment around the stock.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

A Different Perspective

We regret to report that Avis Budget Group shareholders are down 31% for the year. Unfortunately, that's worse than the broader market decline of 10%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. On the bright side, long term shareholders have made money, with a gain of 31% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Avis Budget Group better, we need to consider many other factors. For example, we've discovered 3 warning signs for Avis Budget Group (1 doesn't sit too well with us!) that you should be aware of before investing here.

There are plenty of other companies that have insiders buying up shares. You probably do 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 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.

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