The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But in contrast you can make much more than 100% if the company does well. For instance the Sonic Automotive, Inc. (NYSE:SAH) share price is 132% higher than it was three years ago. Most would be happy with that. On top of that, the share price is up 64% in about a quarter.
Check out our latest analysis for Sonic Automotive
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).
Over the last three years, Sonic Automotive failed to grow earnings per share, which fell 34% (annualized). In this instance, recent extraordinary items impacted the earnings.
Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
Languishing at just 0.9%, we doubt the dividend is doing much to prop up the share price. We severely doubt anyone is particularly impressed with the modest 1.4% three-year revenue growth rate. So truth be told we can't see an easy explanation for the share price action, but perhaps you can...
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. So it makes a lot of sense to check out what analysts think Sonic Automotive will earn in the future (free profit forecasts).
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Sonic Automotive, it has a TSR of 142% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that Sonic Automotive shareholders have received a total shareholder return of 62% over the last year. And that does include the dividend. That's better than the annualised return of 17% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 3 warning signs for Sonic Automotive (1 doesn't sit too well with us) that you should be aware of.
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 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.
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August 28, 2020 at 11:25PM
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Investors Who Bought Sonic Automotive (NYSE:SAH) Shares Three Years Ago Are Now Up 132% - Yahoo Finance
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