Imagine Owning Shore Bancshares (NASDAQ:SHBI) And Wondering If The 42% Share Price Slide Is Justified

Many investors define successful investing as beating the market average over the long term. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Shore Bancshares, Inc. (NASDAQ:SHBI) shareholders have had that experience, with the share price dropping 42% in three years, versus a market return of about 23%. And over the last year the share price fell 40%, so we doubt many shareholders are delighted. The falls have accelerated recently, with the share price down 41% in the last three months.

View our latest analysis for Shore Bancshares

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Although the share price is down over three years, Shore Bancshares actually managed to grow EPS by 19% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

It’s worth taking a look at other metrics, because the EPS growth doesn’t seem to match with the falling share price.

We note that the dividend seems healthy enough, so that probably doesn’t explain the share price drop. It’s good to see that Shore Bancshares has increased its revenue over the last three years. But it’s not clear to us why the share price is down. It might be worth diving deeper into the fundamentals, lest an opportunity goes begging.

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

NasdaqGS:SHBI Income Statement April 27th 2020
NasdaqGS:SHBI Income Statement April 27th 2020

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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 Shore Bancshares, it has a TSR of -39% 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

While the broader market lost about 3.2% in the twelve months, Shore Bancshares shareholders did even worse, losing 39% (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 2.2%, 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. It’s always interesting to track share price performance over the longer term. But to understand Shore Bancshares better, we need to consider many other factors. Like risks, for instance. Every company has them, and we’ve spotted 3 warning signs for Shore Bancshares (of which 1 doesn’t sit too well with us!) you should know about.

We will like Shore Bancshares 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.

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.