When we invest, we're generally looking for stocks that outperform the market average. And in our experience, buying the right stocks can give your wealth a significant boost. To wit, the Independent Bank share price has climbed 75% in five years, easily topping the market return of 46% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 7.7% , including dividends .
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...' 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 five years of share price growth, Independent Bank achieved compound earnings per share (EPS) growth of 17% per year. The EPS growth is more impressive than the yearly share price gain of 12% over the same period. Therefore, it seems the market has become relatively pessimistic about the company.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Independent Bank has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Independent Bank the TSR over the last 5 years was 97%, 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
Independent Bank shareholders are up 7.7% for the year (even including dividends) . Unfortunately this falls short of the market return. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 14% over five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. If you would like to research Independent Bank in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
We will like Independent Bank better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
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 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.
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.