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The Bank of N.T. Butterfield & Son Limited (NYSE:NTB) shareholders should be happy to see the share price up 16% in the last month. But that cannot eclipse the less-than-impressive returns over the last three years. After all, the share price is down 29% in the last three years, significantly under-performing the market.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
Although the share price is down over three years, Bank of N.T. Butterfield & Son actually managed to grow EPS by 25% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.
Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
Given the healthiness of the dividend payments, we doubt that they've concerned the market. We like that Bank of N.T. Butterfield & Son has actually grown its revenue over the last three years. If the company can keep growing revenue, there may be an opportunity for investors. You might have to dig deeper to understand the recent share price weakness.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
This free interactive report on Bank of N.T. Butterfield & Son's balance sheet strength is a great place to start, if you want to investigate the stock further.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. In the case of Bank of N.T. Butterfield & Son, it has a TSR of -18% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Bank of N.T. Butterfield & Son shareholders are down 16% for the year, (even including dividends), but the broader market is up 18%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The three-year loss of 6% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. It's always interesting to track share price performance over the longer term. But to understand Bank of N.T. Butterfield & Son better, we need to consider many other factors. Take risks, for example - Bank of N.T. Butterfield & Son has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.
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.
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. 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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