Taiwan Business Bank (TWSE:2834) sheds 8.5% this week, as yearly returns fall more in line with earnings growth

One simple way to benefit from the stock market is to buy an index fund. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, Taiwan Business Bank, Ltd. (TWSE:2834) shareholders have seen the share price rise 97% over three years, well in excess of the market return (23%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 27% in the last year, including dividends.

Since the long term performance has been good but there's been a recent pullback of 8.5%, let's check if the fundamentals match the share price.

Check out our latest analysis for Taiwan Business 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 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.

During three years of share price growth, Taiwan Business Bank achieved compound earnings per share growth of 30% per year. We don't think it is entirely coincidental that the EPS growth is reasonably close to the 25% 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.

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

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Taiwan Business Bank's TSR for the last 3 years was 104%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Taiwan Business Bank's TSR for the year was broadly in line with the market average, at 27%. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 11%. Even if the share price growth slows down from here, there's a good chance that this is business worth watching in the long term. Before forming an opinion on Taiwan Business Bank you might want to consider these 3 valuation metrics.

Of course Taiwan Business Bank may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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