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Vanguard founder Jack Bogle helped spearhead the low-cost index fund, putting average returns within reach of every investor. But you can make better returns by buying undervalued shares. Notably, the Reliant Bancorp, Inc. (NASDAQ:RBNC) share price has gained 49% in three years, which is better than the average market return. The bad news is that the share price seems to lack positive momentum recently, since it has dropped 22% in the last year.
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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During three years of share price growth, Reliant Bancorp achieved compound earnings per share growth of 7.5% per year. In comparison, the 14% per year gain in the share price outpaces the EPS growth. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It is quite common to see investors become enamoured with a business, after a few years of solid progress.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Reliant Bancorp 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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Reliant Bancorp's TSR for the last 3 years was 55%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
The last twelve months weren't great for Reliant Bancorp shares, which cost holders 20%, including dividends, while the market was up about 7.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Investors are up over three years, booking 16% per year, much better than the more recent returns. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
We will like Reliant Bancorp 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.
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 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. Thank you for reading.