The past five years for OPENLANE (NYSE:KAR) investors has not been profitable
While not a mind-blowing move, it is good to see that the OPENLANE, Inc. (NYSE:KAR) share price has gained 14% in the last three months. But that doesn't change the fact that the returns over the last five years have been less than pleasing. In fact, the share price is down 74%, which falls well short of the return you could get by buying an index fund.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
See our latest analysis for OPENLANE
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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, OPENLANE moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics might give us a better handle on how its value is changing over time.
It could be that the revenue decline of 19% per year is viewed as evidence that OPENLANE is shrinking. This has probably encouraged some shareholders to sell down the stock.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We know that OPENLANE has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think OPENLANE will earn in the future (free profit forecasts).
What About The Total Shareholder Return (TSR)?
We've already covered OPENLANE's share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Its history of dividend payouts mean that OPENLANE's TSR, which was a 28% drop over the last 5 years, was not as bad as the share price return.
A Different Perspective
OPENLANE shareholders are down 9.9% for the year, but the market itself is up 12%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 5% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with OPENLANE , and understanding them should be part of your investment process.
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American 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.
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