Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, the Howard Bancorp, Inc. (NASDAQ:HBMD) share price is up 54% in the last 5 years, clearly besting the market return of around 45% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 9.5%.
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 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 last half decade, Howard Bancorp became profitable. That would generally be considered a positive, so we'd expect the share price to be up.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free interactive report on Howard Bancorp's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
Howard Bancorp shareholders are up 9.5% for the year. But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 9.0% over half a decade This suggests the company might be improving over time. Before spending more time on Howard Bancorp it might be wise to click here to see if insiders have been buying or selling shares.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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 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. Thank you for reading.