Green Brick Partners (NYSE:GRBK) sheds 14% this week, as yearly returns fall more in line with earnings growth
Green Brick Partners, Inc. (NYSE:GRBK) shareholders might be concerned after seeing the share price drop 22% in the last month. But that shouldn't obscure the pleasing returns achieved by shareholders over the last three years. To wit, the share price did better than an index fund, climbing 98% during that period.
In light of the stock dropping 14% 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 three-year return.
See our latest analysis for Green Brick Partners
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 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.
Green Brick Partners was able to grow its EPS at 64% per year over three years, sending the share price higher. This EPS growth is higher than the 26% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 3.80.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
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. This free interactive report on Green Brick Partners' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
Green Brick Partners shareholders are down 22% over twelve months, which isn't far from the market return of -21%. Longer term investors wouldn't be so upset, since they would have made 10%, each year, over five years. If the stock price has been impacted by changing sentiment, rather than deteriorating business conditions, it could spell opportunity. It's always interesting to track share price performance over the longer term. But to understand Green Brick Partners better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Green Brick Partners (at least 2 which make us uncomfortable) , and understanding them should be part of your investment process.
Green Brick Partners 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 US 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.
