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Did The Underlying Business Drive Barrett Business Services's (NASDAQ:BBSI) Lovely 337% Share Price Gain?

Simply Wall St

Buying shares in the best businesses can build meaningful wealth for you and your family. While the best companies are hard to find, but they can generate massive returns over long periods. Don't believe it? Then look at the Barrett Business Services, Inc. (NASDAQ:BBSI) share price. It's 337% higher than it was five years ago. This just goes to show the value creation that some businesses can achieve. The last week saw the share price soften some 3.0%.

View our latest analysis for Barrett Business Services

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 the five years of share price growth, Barrett Business Services moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. Indeed, the Barrett Business Services share price has gained 53% in three years. Meanwhile, EPS is up 33% per year. This EPS growth is higher than the 15% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

NasdaqGS:BBSI Past and Future Earnings, November 26th 2019

We know that Barrett Business Services has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. In the case of Barrett Business Services, it has a TSR of 378% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that Barrett Business Services shareholders have received a total shareholder return of 28% over the last year. That's including the dividend. However, the TSR over five years, coming in at 37% per year, is even more impressive. Before spending more time on Barrett Business Services it might be wise to click here to see if insiders have been buying or selling shares.

We will like Barrett Business Services better if we see some big insider buys. While we wait, check out this free list of growing companies 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 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.