It's easy to feel disappointed if you buy a stock that goes down. But in the short term the market is a voting machine, and the share price movements may not reflect the underlying business performance. The Eagle Bancorp Montana, Inc. (NASDAQ:EBMT) is down 16% over a year, but the total shareholder return is -14% once you include the dividend. And that total return actually beats the market decline of 19%. On the other hand, the stock is actually up 6.1% over three years.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
Unfortunately Eagle Bancorp Montana reported an EPS drop of 46% for the last year. This fall in the EPS is significantly worse than the 16% the share price fall. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It might be well worthwhile taking a look at our free report on Eagle Bancorp Montana's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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 and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Eagle Bancorp Montana, it has a TSR of -14% for the last 1 year. 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
While it's certainly disappointing to see that Eagle Bancorp Montana shares lost 14% throughout the year, that wasn't as bad as the market loss of 19%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 1.7% for each year. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. 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. Even so, be aware that Eagle Bancorp Montana is showing 3 warning signs in our investment analysis , you should know about...
But note: Eagle Bancorp Montana may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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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