TowneBank (NASDAQ: TOWN) surges 3.2% this week, although earnings growth still falls short of year-over-year shareholder returns
The easiest way to invest in stocks is to buy exchange traded funds. But you can do better than that by choosing better-than-average stocks (as part of a diversified portfolio). For example, the TowneBank The stock price (NASDAQ: TOWN) has risen 89% over the past year, significantly outperforming the market return by around 37% (excluding dividends). It’s a solid performance by our standards! Unfortunately, long-term returns aren’t that good, with the stock falling 2.3% in the past three years.
Based on a strong 7-day performance, let’s check out what role company fundamentals have played in generating long-term returns for shareholders.
To paraphrase Benjamin Graham: In the short term the market is a voting machine, but in the long term it is a weighing machine. An imperfect but reasonable way to gauge how sentiment is changing around a company is to compare earnings per share (EPS) with the stock price.
Over the past year, TowneBank has increased its earnings per share (EPS) by 56%. This EPS growth is significantly lower than the 89% increase in the share price. This indicates that the market is now more bullish on the stock.
The company’s earnings per share (over time) is shown in the image below (click to see exact numbers).
NasdaqGS: TOWN Growth in earnings per share September 24, 2021
It’s probably worth noting that CEOs are paid less than the median in companies of similar size. It’s always worth keeping an eye on CEO compensation, but a bigger question is whether the company will increase profits over the years. Before buying or selling a stock, we always recommend a careful review of historical growth trends, available here.
What about dividends?
In addition to measuring stock price performance, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any discounted demerger or capital increase, as well as any dividend, based on the assumption that dividends are reinvested. So, for companies that pay a generous dividend, the TSR is often much higher than the return on the share price. In the case of TowneBank, it has a TSR of 95% for the past year. This exceeds the return on its share price that we mentioned earlier. This is largely the result of his dividend payments!
A different perspective
It is nice to see that TowneBank shareholders have received a total shareholder return of 95% over the past year. Of course, this includes the dividend. As the 1-year TSR is better than the 5-year TSR (the latter standing at 7% per year), it seems that the performance of the stock has improved in recent times. Since the stock price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. I find it very interesting to look at the long-term share price as an indicator of company performance. But to really get an overview, we have to take other information into account as well. Concrete example: we have spotted 1 warning sign for TowneBank you must be aware.
If you like to buy stocks alongside management then you might love this free list of companies. (Hint: insiders bought them).
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently traded on US stock exchanges.
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