Did TF Bank's (STO:TFBANK) Share Price Deserve to Gain 36%?

You can receive the average market return by buying a low-cost index fund. But you can make superior returns by picking better-than average stocks. To wit, TF Bank AB (publ) (STO:TFBANK) shares are up 36% in three years, besting the market return. The bad news is that the share price seems to lack positive momentum recently, since it has dropped 3.0% in the last year.

Check out our latest analysis for TF Bank

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 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.

During three years of share price growth, TF Bank achieved compound earnings per share growth of 9.1% per year. We don't think it is entirely coincidental that the EPS growth is reasonably close to the 11% average annual increase in the share price. This suggests that sentiment and expectations have not changed drastically. Quite to the contrary, the share price has arguably reflected the EPS growth.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

Dive deeper into TF Bank's key metrics by checking this interactive graph of TF Bank'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. We note that for TF Bank the TSR over the last 3 years was 43%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

The last twelve months weren't great for TF Bank shares, which cost holders 3.0%, including dividends, while the market was up about 20%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Investors are up over three years, booking 13% per year, much better than the more recent returns. The recent sell-off could be an opportunity if the business remains sound, so it may be worth checking the fundamental data for signs of a long-term growth trend. 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. For instance, we've identified 1 warning sign for TF Bank that you should be aware of.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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

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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. 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.
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