Grocery Outlet Holding (NASDAQ:GO) adds US$70m to market cap in the past 7 days, though investors from five years ago are still down 45%

Simply Wall St · 10/17 11:02

For many, the main point of investing is to generate higher returns than the overall market. But even the best stock picker will only win with some selections. At this point some shareholders may be questioning their investment in Grocery Outlet Holding Corp. (NASDAQ:GO), since the last five years saw the share price fall 45%. And we doubt long term believers are the only worried holders, since the stock price has declined 39% over the last twelve months. The falls have accelerated recently, with the share price down 21% in the last three months.

While the last five years has been tough for Grocery Outlet Holding shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

Check out our latest analysis for Grocery Outlet Holding

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.

During five years of share price growth, Grocery Outlet Holding moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.

Revenue is actually up 10% over the time 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.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth
NasdaqGS:GO Earnings and Revenue Growth October 17th 2024

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. If you are thinking of buying or selling Grocery Outlet Holding stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

While the broader market gained around 38% in the last year, Grocery Outlet Holding shareholders lost 39%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 8% 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. For instance, we've identified 1 warning sign for Grocery Outlet Holding that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: most of them are flying under the radar).

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