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Investors can buy low cost index fund if they want to receive the average market return. But if you invest in individual stocks, some are likely to underperform. Unfortunately for shareholders, while the Bancorp Of New Jersey, Inc. (NYSEMKT:BKJ) share price is up 34% in the last three years, that falls short of the market return. Zooming in, the stock is actually down 17% in the last year.
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Bancorp Of New Jersey was able to grow its EPS at 2.5% per year over three years, sending the share price higher. This EPS growth is lower than the 10% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did three years ago. It is quite common to see investors become enamoured with a business, after a few years of solid progress.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
This free interactive report on Bancorp Of New Jersey's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Dividend Lost
The value of past dividends are accounted for in the total shareholder return (TSR), but not in the share price return mentioned above. In some ways, TSR is a better measure of how well an investment has performed. Bancorp Of New Jersey's TSR over the last 3 years is 37%; better than its share price return. Although the company had to cut dividends, it has paid cash to shareholders in the past.
A Different Perspective
While the broader market gained around 6.3% in the last year, Bancorp Of New Jersey shareholders lost 17%. 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. Longer term investors wouldn't be so upset, since they would have made 2.5%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
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 email@example.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.