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Should Enterprise Bancorp (NASDAQ:EBTC) Be Disappointed With Their 39% Profit?

Simply Wall St

If you buy and hold a stock for many years, you'd hope to be making a profit. Furthermore, you'd generally like to see the share price rise faster than the market Unfortunately for shareholders, while the Enterprise Bancorp, Inc. (NASDAQ:EBTC) share price is up 39% in the last five years, that's less than the market return. Unfortunately the share price is down 6.7% in the last year.

View our latest analysis for Enterprise Bancorp

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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, Enterprise Bancorp achieved compound earnings per share (EPS) growth of 14% per year. This EPS growth is higher than the 6.7% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company. The reasonably low P/E ratio of 11.20 also suggests market apprehension.

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

NasdaqGS:EBTC Past and Future Earnings, October 18th 2019

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Enterprise Bancorp's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Enterprise Bancorp the TSR over the last 5 years was 53%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Investors in Enterprise Bancorp had a tough year, with a total loss of 4.7% (including dividends) , against a market gain of about 9.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 8.9% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.

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.