Stock Analysis

Karnataka Bank's (NSE:KTKBANK) Stock Price Has Reduced 69% In The Past Three Years

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NSEI:KTKBANK
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If you love investing in stocks you're bound to buy some losers. But long term The Karnataka Bank Limited (NSE:KTKBANK) shareholders have had a particularly rough ride in the last three year. So they might be feeling emotional about the 69% share price collapse, in that time. The more recent news is of little comfort, with the share price down 36% in a year. It's up 3.7% in the last seven days.

See our latest analysis for Karnataka Bank

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.

Although the share price is down over three years, Karnataka Bank actually managed to grow EPS by 2.1% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

It looks to us like the market was probably too optimistic around growth three years ago. However, taking a look at other business metrics might shed a bit more light on the share price action.

We note that, in three years, revenue has actually grown at a 13% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Karnataka Bank further; while we may be missing something on this analysis, there might also be an opportunity.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

earnings-and-revenue-growth
NSEI:KTKBANK Earnings and Revenue Growth November 15th 2020

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free interactive report on Karnataka Bank's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Karnataka Bank's total shareholder return (TSR) and its share price change, which we've covered above. 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. Dividends have been really beneficial for Karnataka Bank shareholders, and that cash payout explains why its total shareholder loss of 67%, over the last 3 years, isn't as bad as the share price return.

A Different Perspective

Karnataka Bank shareholders are down 36% for the year, but the market itself is up 7.5%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 8% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. Even so, be aware that Karnataka Bank is showing 1 warning sign in our investment analysis , you should know about...

We will like Karnataka Bank better if we see some big insider buys. While we wait, check out this free list of growing companies 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 IN exchanges.

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About NSEI:KTKBANK

Karnataka Bank

The Karnataka Bank Limited provides personal and business banking products and services in India.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation2
Future Growth0
Past Performance4
Financial Health4
Dividends4

Read more about these checks in the individual report sections or in our analysis model.

Adequate balance sheet with proven track record and pays a dividend.