Banco do Nordeste do Brasil's (BVMF:BNBR3) 16% CAGR outpaced the company's earnings growth over the same five-year period

When we invest, we're generally looking for stocks that outperform the market average. Buying under-rated businesses is one path to excess returns. For example, the Banco do Nordeste do Brasil S.A. (BVMF:BNBR3) share price is up 56% in the last 5 years, clearly besting the market decline of around 4.2% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 23% in the last year, including dividends.

Since the stock has added R$388m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Over half a decade, Banco do Nordeste do Brasil managed to grow its earnings per share at 14% a year. The EPS growth is more impressive than the yearly share price gain of 9% over the same period. So it seems the market isn't so enthusiastic about the stock these days. The reasonably low P/E ratio of 3.81 also suggests market apprehension.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

Dive deeper into Banco do Nordeste do Brasil's key metrics by checking this interactive graph of Banco do Nordeste do Brasil'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. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Banco do Nordeste do Brasil, it has a TSR of 113% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

Banco do Nordeste do Brasil's TSR for the year was broadly in line with the market average, at 23%. That gain looks pretty satisfying, and it is even better than the five-year TSR of 16% per year. It is possible that management foresight will bring growth well into the future, even if the share price slows down. It's always interesting to track share price performance over the longer term. But to understand Banco do Nordeste do Brasil better, we need to consider many other factors. Even so, be aware that Banco do Nordeste do Brasil is showing 1 warning sign in our investment analysis , you should know about...

We will like Banco do Nordeste do Brasil better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Brazilian 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.