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Did You Manage To Avoid Simmons First National's (NASDAQ:SFNC) 23% Share Price Drop?

Simply Wall St

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Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Simmons First National Corporation (NASDAQ:SFNC) shareholders over the last year, as the share price declined 23%. That's disappointing when you consider the market returned 6.4%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 3.5% in three years. The falls have accelerated recently, with the share price down 10% in the last three months.

See our latest analysis for Simmons First National

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

Even though the Simmons First National share price is down over the year, its EPS actually improved. It could be that the share price was previously over-hyped. The divergence between the EPS and the share price is quite notable, during the year. So it's easy to justify a look at some other metrics.

Simmons First National's revenue is actually up 23% over the last year. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

NasdaqGS:SFNC Income Statement, July 17th 2019
NasdaqGS:SFNC Income Statement, July 17th 2019

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. So it makes a lot of sense to check out what analysts think Simmons First National will earn in the future (free profit forecasts).

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Simmons First National's total shareholder return (TSR) and its share price return. 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. Simmons First National's TSR of was a loss of 21% for the year. That wasn't as bad as its share price return, because it has paid dividends.

A Different Perspective

Simmons First National shareholders are down 21% for the year (even including dividends), but the market itself is up 6.4%. 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 5.7%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.