The simplest way to invest in stocks is to buy exchange traded funds. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the First Business Financial Services, Inc. (NASDAQ:FBIZ) share price is 26% higher than it was a year ago, much better than the market return of around 20% (not including dividends) in the same period. That's a solid performance by our standards! The longer term returns have not been as good, with the stock price only 7.9% higher than it was three years ago.
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 year First Business Financial Services grew its earnings per share (EPS) by 47%. This EPS growth is significantly higher than the 26% increase in the share price. So it seems like the market has cooled on First Business Financial Services, despite the growth. Interesting. The caution is also evident in the lowish P/E ratio of 9.47.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that First Business Financial Services has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for First Business Financial Services the TSR over the last year was 29%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's good to see that First Business Financial Services has rewarded shareholders with a total shareholder return of 29% in the last twelve months. And that does include the dividend. That gain is better than the annual TSR over five years, which is 5.5%. 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. 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. For instance, we've identified 1 warning sign for First Business Financial Services that 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.
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