Buying a low-cost index fund will get you the average market return. But in any diversified portfolio of stocks, you’ll see some that fall short of the average. Unfortunately for shareholders, while the Opus Bank (NASDAQ:OPB) share price is up 22% in the last three years, that falls short of the market return. In the last year the stock has gained 13%.
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…’ 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.
During the three years of share price growth, Opus Bank actually saw its earnings per share (EPS) drop 13% per year.
This means it’s unlikely the market is judging the company based on earnings growth. Given this situation, it makes sense to look at other metrics too.
The modest 1.8% dividend yield is unlikely to be propping up the share price. It could be that the revenue growth of 5.2% per year is viewed as evidence that Opus Bank is growing. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder’s faith in better days ahead will be rewarded.
You can see below how earnings and revenue have changed over time (discover 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?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Opus Bank the TSR over the last 3 years was 26%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Opus Bank shareholders gained a total return of 15% during the year. But that return falls short of the market. On the bright side, that’s still a gain, and it’s actually better than the average return of 0.3% over half a decade This could indicate that the company is winning over new investors, as it pursues its strategy. 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. Case in point: We’ve spotted 1 warning sign for Opus Bank you should be aware of.
If you are like me, then you will not want to miss this free list of growing companies that insiders are 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 email@example.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.
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