Gray Television (NYSE:GTN) investors are up 3.2% in the past week, but earnings have declined over the last five years
When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Better yet, you'd like to see the share price move up more than the market average. But Gray Television, Inc. (NYSE:GTN) has fallen short of that second goal, with a share price rise of 35% over five years, which is below the market return. Zooming in, the stock is actually down 11% in the last year.
The past week has proven to be lucrative for Gray Television investors, so let's see if fundamentals drove the company's five-year performance.
Check out our latest analysis for Gray Television
There is no denying that markets are sometimes efficient, but prices do not always reflect 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 five years of share price growth, Gray Television actually saw its EPS drop 6.2% per year.
Essentially, it doesn't seem likely that investors are focused on EPS. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.
The modest 1.6% dividend yield is unlikely to be propping up the share price. On the other hand, Gray Television's revenue is growing nicely, at a compound rate of 25% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. So we recommend checking out this free report showing consensus forecasts
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Gray Television, it has a TSR of 38% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
The total return of 10% received by Gray Television shareholders over the last year isn't far from the market return of -11%. The silver lining is that longer term investors would have made a total return of 7% per year over half a decade. If the fundamental data remains strong, and the share price is simply down on sentiment, then this could be an opportunity worth investigating. 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. Take risks, for example - Gray Television has 5 warning signs (and 1 which shouldn't be ignored) we think you should know about.
Gray Television is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
