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Volatility 101: Should First Northwest Bancorp (NASDAQ:FNWB) Shares Have Dropped 16%?

Simply Wall St
·3 mins read

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Investors in First Northwest Bancorp (NASDAQ:FNWB) have tasted that bitter downside in the last year, as the share price dropped 16%. That falls noticeably short of the market return of around -4.3%. Taking the longer term view, the stock fell 16% over the last three years. The share price has dropped 25% in three months. But this could be related to the weak market, which is down 16% in the same period.

See our latest analysis for First Northwest Bancorp

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the unfortunate twelve months during which the First Northwest Bancorp share price fell, it actually saw its earnings per share (EPS) improve by 33%. Of course, the situation might betray previous over-optimism about growth.

It's fair to say that the share price does not seem to be reflecting the EPS growth. So it's easy to justify a look at some other metrics.

With a low yield of 1.5% we doubt that the dividend influences the share price much. First Northwest Bancorp's revenue is actually up 6.4% over the last year. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

NasdaqGM:FNWB Income Statement, March 15th 2020
NasdaqGM:FNWB Income Statement, March 15th 2020

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. It might be well worthwhile taking a look at our free report on First Northwest Bancorp's earnings, revenue and cash flow.

A Different Perspective

While the broader market lost about 4.3% in the twelve months, First Northwest Bancorp shareholders did even worse, losing 16% (even including dividends) . Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 1.8%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 1 warning sign for First Northwest Bancorp you should be aware of.

First Northwest Bancorp is not the only stock insiders are buying. So take a peek at this free list of growing companies with 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 editorial-team@simplywallst.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.