By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, State Bank of India (NSE:SBIN) shareholders have seen the share price rise 69% over three years, well in excess of the market return (41%, not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 27% in the last year.
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 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).
Over the last three years, State Bank of India failed to grow earnings per share, which fell 122% (annualized). Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Therefore, we think it’s worth considering other metrics as well.
The revenue drop of 0.6% is as underwhelming as some politicians. The only thing that’s clear is there is low correlation between State Bank of India’s share price and its historic fundamental data. Further research may be required!
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
State Bank of India is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for State Bank of India in this interactive graph of future profit estimates.
A Dividend Lost
The value of past dividends are accounted for in the total shareholder return (TSR), but not in the share price return mentioned above. By accounting for the value of dividends paid, the TSR can be seen as a more complete measure of the value a company brings to its shareholders. State Bank of India’s TSR over the last 3 years is 73%; better than its share price return. Although the company had to cut dividends, it has paid cash to shareholders in the past.
A Different Perspective
We’re pleased to report that State Bank of India shareholders have received a total shareholder return of 27% over one year. That’s better than the annualised return of 9.7% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN 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.