Investors five-year returns in Columbia Banking System (NASDAQ:COLB) have grown faster than the company's underlying earnings growth

By
Simply Wall St
Published
November 17, 2021
NasdaqGS:COLB
Source: Shutterstock

For many, the main point of investing is to generate higher returns than the overall market. But even the best stock picker will only win with some selections. So we wouldn't blame long term Columbia Banking System, Inc. (NASDAQ:COLB) shareholders for doubting their decision to hold, with the stock down 12% over a half decade.

If the past week is anything to go by, investor sentiment for Columbia Banking System isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

View our latest analysis for Columbia Banking System

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 the unfortunate half decade during which the share price slipped, Columbia Banking System actually saw its earnings per share (EPS) improve by 10.0% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.

Generally speaking we'd expect to see stronger share price increases on the back of sustained EPS growth, but other metrics may hold a clue to why the share price performance is relatively modest.

In contrast to the share price, revenue has actually increased by 7.1% a year in the five year period. So it seems one might have to take closer look at the fundamentals to understand why the share price languishes. After all, there may be an opportunity.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

earnings-and-revenue-growth
NasdaqGS:COLB Earnings and Revenue Growth November 18th 2021

We know that Columbia Banking System has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Columbia Banking System

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. In the case of Columbia Banking System, it has a TSR of 3.0% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Columbia Banking System provided a TSR of 5.6% over the last twelve months. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 0.6% per year over five year. This suggests the company might be improving over time. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Columbia Banking System is showing 2 warning signs in our investment analysis , you should know about...

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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

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