As an investor its worth striving to ensure your overall portfolio beats the market average. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term FNCB Bancorp, Inc. (NASDAQ:FNCB) shareholders have had that experience, with the share price dropping 26% in three years, versus a market return of about 33%. And more recent buyers are having a tough time too, with a drop of 26% in the last year. Shareholders have had an even rougher run lately, with the share price down 18% in the last 90 days.
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ 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 the unfortunate three years of share price decline, FNCB Bancorp actually saw its earnings per share (EPS) improve by 5.5% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.
Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.
Revenue is actually up 4.3% over the three years, so the share price drop doesn’t seem to hinge on revenue, either. It’s probably worth investigating FNCB Bancorp further; while we may be missing something on this analysis, there might also be an opportunity.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for FNCB Bancorp the TSR over the last 3 years was -20%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
While the broader market gained around 12% in the last year, FNCB Bancorp shareholders lost 23% (even including dividends) . Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 1.0% per year over half a decade. 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 FNCB Bancorp better, we need to consider many other factors. To that end, you should learn about the 4 warning signs we’ve spotted with FNCB Bancorp (including 1 which is doesn’t sit too well with us) .
But note: FNCB Bancorp 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. 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. Thank you for reading.