GEO Group's (NYSE:GEO) investors will be pleased with their splendid 166% return over the last three years

The GEO Group, Inc. (NYSE:GEO) shareholders might be concerned after seeing the share price drop 17% in the last quarter. In contrast, the return over three years has been impressive. Indeed, the share price is up a very strong 166% in that time. To some, the recent share price pullback wouldn't be surprising after such a good run. If the business can perform well for years to come, then the recent drop could be an opportunity.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

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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. 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 three years of share price growth, GEO Group achieved compound earnings per share growth of 7.5% per year. In comparison, the 38% per year gain in the share price outpaces the EPS growth. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It's not unusual to see the market 're-rate' a stock, after a few years of growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that GEO Group has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

A Different Perspective

It's good to see that GEO Group has rewarded shareholders with a total shareholder return of 60% in the last twelve months. That gain is better than the annual TSR over five years, which is 15%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for GEO Group (of which 1 is potentially serious!) you should know about.

We will like GEO Group better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.