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Stock pickers are generally looking for stocks that will outperform the broader market. Buying under-rated businesses is one path to excess returns. To wit, the Bank of Commerce Holdings share price has climbed 69% in five years, easily topping the market return of 44% (ignoring dividends).
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 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 five years of share price growth, Bank of Commerce Holdings achieved compound earnings per share (EPS) growth of 16% per year. The EPS growth is more impressive than the yearly share price gain of 11% over the same period. So one could conclude that the broader market has become more cautious towards the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 11.83.
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. Dive deeper into the earnings by checking this interactive graph of Bank of Commerce Holdings’s earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Bank of Commerce Holdings’s TSR for the last 5 years was 83%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Bank of Commerce Holdings shareholders are down 15% for the year (even including dividends), but the market itself is up 6.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 13% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Bank of Commerce Holdings by clicking this link.
Bank of Commerce Holdings is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.