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When you buy and hold a stock for the long term, you definitely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. But Cathay General Bancorp (NASDAQ:CATY) has fallen short of that second goal, with a share price rise of 30% over five years, which is below the market return. Unfortunately the share price is down 20% 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 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, Cathay General Bancorp achieved compound earnings per share (EPS) growth of 17% per year. This EPS growth is higher than the 5.3% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company. This cautious sentiment is reflected in its (fairly low) P/E ratio of 10.12.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on Cathay General Bancorp's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Cathay General Bancorp the TSR over the last 5 years was 45%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
While the broader market lost about 0.7% in the twelve months, Cathay General Bancorp shareholders did even worse, losing 18% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Longer term investors wouldn't be so upset, since they would have made 7.8%, 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. If you would like to research Cathay General Bancorp in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
But note: Cathay General Bancorp may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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 firstname.lastname@example.org. 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.