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Volatility 101: Should Avis Budget Group (NASDAQ:CAR) Shares Have Dropped 41%?

Simply Wall St

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Avis Budget Group, Inc. (NASDAQ:CAR) shareholders should be happy to see the share price up 23% in the last month. 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 41%, which falls well short of the return you could get by buying an index fund.

Check out our latest analysis for Avis Budget Group

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 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.

While the share price declined over five years, Avis Budget Group actually managed to increase EPS by an average of 27% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS. Because of the sharp contrast between the EPS growth rate and the share price growth, we're inclined to look to other metrics to understand the changing market sentiment around the stock.

In contrast to the share price, revenue has actually increased by 2.0% a year in the five year period. So it seems one might have to take closer look at the fundamentals to understand why the share price languishes. After all, there may be an opportunity.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

NasdaqGS:CAR Income Statement, July 2nd 2019

Take a more thorough look at Avis Budget Group's financial health with this free report on its balance sheet.

A Different Perspective

Avis Budget Group provided a TSR of 7.5% over the last twelve months. But that was short of the market average. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 10.0% endured over half a decade. It could well be that the business is stabilizing. Before spending more time on Avis Budget Group it might be wise to click here to see if insiders have been buying or selling shares.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.