The GEO Group, Inc. (NYSE:GEO) has rebounded strongly over the last week, with the share price soaring 45%. But that is small recompense for the exasperating returns over three years. Tragically, the share price declined 65% in that time. Some might say the recent bounce is to be expected after such a bad drop. Perhaps the company has turned over a new leaf.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the three years that the share price fell, GEO Group’s earnings per share (EPS) dropped by 0.3% each year. This reduction in EPS is slower than the 29% annual reduction in the share price. So it’s likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. The less favorable sentiment is reflected in its current P/E ratio of 7.70.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into GEO Group’s key metrics by checking this interactive graph of GEO Group’s earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
We’ve already covered GEO Group’s share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Dividends have been really beneficial for GEO Group shareholders, and that cash payout explains why its total shareholder loss of 52%, over the last 3 years, isn’t as bad as the share price return.
A Different Perspective
Investors in GEO Group had a tough year, with a total loss of 20%, against a market gain of about 39%. 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 6% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It’s always interesting to track share price performance over the longer term. But to understand GEO Group better, we need to consider many other factors.