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Did Unity Bancorp's (NASDAQ:UNTY) Share Price Deserve to Gain 68%?

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While Unity Bancorp, Inc. (NASDAQ:UNTY) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 29% in the last quarter. But that doesn't change the fact that the returns over the last five years have been pleasing. After all, the share price is up a market-beating 68% in that time.

View our latest analysis for Unity Bancorp

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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, Unity Bancorp achieved compound earnings per share (EPS) growth of 22% per year. This EPS growth is higher than the 11% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 6.56.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

NasdaqGM:UNTY Past and Future Earnings May 22nd 2020
NasdaqGM:UNTY Past and Future Earnings May 22nd 2020

This free interactive report on Unity Bancorp's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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 Unity Bancorp the TSR over the last 5 years was 80%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Unity Bancorp shareholders are down 32% for the year (even including dividends) , but the market itself is up 5.9%. 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 12%, 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Unity Bancorp is showing 3 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

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.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.