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Did You Miss Northwest Bancshares's (NASDAQ:NWBI) 38% Share Price Gain?

Simply Wall St

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 Northwest Bancshares, Inc. (NASDAQ:NWBI) has fallen short of that second goal, with a share price rise of 38% over five years, which is below the market return. Unfortunately the share price is down 5.6% in the last year.

See our latest analysis for Northwest Bancshares

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.

During five years of share price growth, Northwest Bancshares achieved compound earnings per share (EPS) growth of 8.5% per year. This EPS growth is higher than the 6.7% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

NasdaqGS:NWBI Past and Future Earnings, January 9th 2020
NasdaqGS:NWBI Past and Future Earnings, January 9th 2020

It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Dive deeper into the earnings by checking this interactive graph of Northwest Bancshares's earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Northwest Bancshares the TSR over the last 5 years was 70%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Northwest Bancshares shareholders are down 1.6% for the year (even including dividends) , but the market itself is up 27%. 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 11%, 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. 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.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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.

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. Thank you for reading.