Investing in Middlefield Banc (NASDAQ:MBCN) three years ago would have delivered you a 36% gain
Middlefield Banc Corp. (NASDAQ:MBCN) shareholders might be concerned after seeing the share price drop 21% in the last quarter. On the other hand the share price is higher than it was three years ago. Arguably you'd have been better off buying an index fund, because the gain of 24% in three years isn't amazing.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
View our latest analysis for Middlefield Banc
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.
Middlefield Banc was able to grow its EPS at 7.5% per year over three years, sending the share price higher. This EPS growth is remarkably close to the 8% average annual increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Quite to the contrary, the share price has arguably reflected the EPS growth.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. This free interactive report on Middlefield Banc's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Middlefield Banc's TSR for the last 3 years was 36%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Middlefield Banc shareholders are down 10% for the year (even including dividends), but the market itself is up 0.8%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.3% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 1 warning sign for Middlefield Banc 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 American 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.
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