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Passive investing in index funds can generate returns that roughly match the overall market. But you can significantly boost your returns by picking above-average stocks. To wit, the Franklin Financial Services Corporation (NASDAQ:FRAF) share price is 21% higher than it was a year ago, much better than the market return of around 3.7% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! In contrast, the longer term returns are negative, since the share price is 7.8% lower than it was three years ago.
Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the last year Franklin Financial Services grew its earnings per share (EPS) by 60%. This EPS growth is significantly higher than the 21% increase in the share price. Therefore, it seems the market isn't as excited about Franklin Financial Services as it was before. This could be an opportunity. The caution is also evident in the lowish P/E ratio of 7.52.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. 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 Franklin Financial Services' 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Franklin Financial Services' TSR for the last 1 year was 26%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's good to see that Franklin Financial Services has rewarded shareholders with a total shareholder return of 26% in the last twelve months. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 6%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Franklin Financial Services better, we need to consider many other factors. For instance, we've identified 1 warning sign for Franklin Financial Services that you should be aware of.
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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.