While not a mind-blowing move, it is good to see that the Westpac Banking Corporation (ASX:WBC) share price has gained 12% in the last three months. But over the last half decade, the stock has not performed well. You would have done a lot better buying an index fund, since the stock has dropped 30% in that half decade.
Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Looking back five years, both Westpac Banking's share price and EPS declined; the latter at a rate of 7.0% per year. In this case, the EPS change is really very close to the share price drop of 7% a year. This suggests that market participants have not changed their view of the company all that much. Rather, the share price has approximately tracked EPS growth.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Westpac Banking's earnings, revenue and cash flow.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Westpac Banking's TSR for the last 5 years was -10%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Westpac Banking shareholders are up 0.8% for the year (even including dividends). Unfortunately this falls short of the market return. But at least that's still a gain! Over five years the TSR has been a reduction of 2% per year, over five years. It could well be that the business is stabilizing. It's always interesting to track share price performance over the longer term. But to understand Westpac Banking better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Westpac Banking , and understanding them should be part of your investment process.
There are plenty of other companies that have insiders buying up shares. You probably do 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 AU exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.