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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. That’s what has happened with the Erste Group Bank AG (VIE:EBS) share price. It’s up 28% over three years, but that is below the market return. Unfortunately, the share price has fallen 18% over twelve months.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed, is to compare the earnings per share (EPS) with the share price.
Erste Group Bank became profitable within the last three years. That would generally be considered a positive, so we’d expect the share price to be up.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Erste Group Bank has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Erste Group Bank will revenue can grow in the future.
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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Erste Group Bank’s TSR for the last 3 years was 40%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
We regret to report that Erste Group Bank shareholders are down 15% for the year (even including dividends). Unfortunately, that’s even worse than the broader market decline of 5.3%. Having said that, its 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 3.5%, 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. Keeping this in mind, a solid next step might be to take a look at Erste Group Bank’s dividend track record. This free interactive graph is a great place to start.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AT 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 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. Thank you for reading.