When we invest, we’re generally looking for stocks that outperform the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Severn Bancorp, Inc. (NASDAQ:SVBI) share price is up 95% in the last 5 years, clearly besting than the market return of around 40% (ignoring dividends). On the other hand, the more recent gains haven’t been so impressive, with shareholders gaining just 19%, including dividends.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 half decade, Severn Bancorp became profitable. That would generally be considered a positive, so we’d expect the share price to be up. Since the company was unprofitable five years ago, but not three years ago, it’s worth taking a look at the returns in the last three years, too. Indeed, the Severn Bancorp share price has gained 68% in three years. In the same period, EPS is up 47% per year. This EPS growth is higher than the 19% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Severn Bancorp the TSR over the last 5 years was 99%, which is better than the share price return mentioned above. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It’s nice to see that Severn Bancorp shareholders have received a total shareholder return of 19% over the last year. That’s including the dividend. That’s better than the annualised return of 15% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. If you would like to research Severn Bancorp in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
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 email@example.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.