Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Unfortunately the The First Bancshares, Inc. (NASDAQ:FBMS) share price slid 41% over twelve months. That contrasts poorly with the market decline of 3.2%. Even if you look out three years, the returns are still disappointing, with the share price down36% in that time. The share price has dropped 46% in three months.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 the unfortunate twelve months during which the First Bancshares share price fell, it actually saw its earnings per share (EPS) improve by 57%. It could be that the share price was previously over-hyped.
The divergence between the EPS and the share price is quite notable, during the year. So it's well worth checking out some other metrics, too.
First Bancshares managed to grow revenue over the last year, which is usually a real positive. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.
The graphic below depicts how earnings and revenue have 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. You can see what analysts are predicting for First Bancshares in this interactive graph of future profit estimates.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between First Bancshares's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Dividends have been really beneficial for First Bancshares shareholders, and that cash payout explains why its total shareholder loss of 40%, over the last year, isn't as bad as the share price return.
A Different Perspective
While the broader market lost about 3.2% in the twelve months, First Bancshares shareholders did even worse, losing 40% (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 3.4%, 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's always interesting to track share price performance over the longer term. But to understand First Bancshares better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for First Bancshares you should be aware of.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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 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.
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.