It is a pleasure to report that the Affinity Bancshares, Inc. (NASDAQ:AFBI) is up 44% in the last quarter. But that doesn't change the fact that the returns over the last three years have been less than pleasing. After all, the share price is down 10% in the last three years, significantly under-performing the market.
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 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).
During the unfortunate three years of share price decline, Affinity Bancshares actually saw its earnings per share (EPS) improve by 50% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.
We're actually a quite surprised to see the share price down while EPS have grown strongly. So we'll have to take a look at other metrics to try to understand the price action.
Revenue is actually up 14% over the three years, so the share price drop doesn't seem to hinge on revenue, either. This analysis is just perfunctory, but it might be worth researching Affinity Bancshares more closely, as sometimes stocks fall unfairly. This could present an opportunity.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. This free interactive report on Affinity Bancshares' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
Over the last year, Affinity Bancshares shareholders took a loss of 10%. In contrast the market gained about 27%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 3% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. 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. Case in point: We've spotted 4 warning signs for Affinity Bancshares you should be aware of, and 1 of them is a bit unpleasant.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
When trading Affinity Bancshares or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account.
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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.