Does Enterprise Bancorp's (NASDAQ:EBTC) Share Price Gain of 50% Match Its Business Performance?

By
Simply Wall St
Published
May 30, 2021
NasdaqGS:EBTC

A diverse portfolio of stocks will always have winners and losers. But the goal is to pick stocks that do better than average. One such company is Enterprise Bancorp, Inc. (NASDAQ:EBTC), which saw its share price increase 50% in the last year, slightly above the market return of around 43% (not including dividends). In contrast, the longer term returns are negative, since the share price is 14% lower than it was three years ago.

View our latest analysis for Enterprise Bancorp

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 last year Enterprise Bancorp grew its earnings per share (EPS) by 27%. The share price gain of 50% certainly outpaced the EPS growth. This indicates that the market is now more optimistic about the stock.

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

earnings-per-share-growth
NasdaqGS:EBTC Earnings Per Share Growth May 31st 2021

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free interactive report on Enterprise Bancorp's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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, Enterprise Bancorp's TSR for the last year was 54%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that Enterprise Bancorp shareholders have received a total shareholder return of 54% over the last year. And that does include the dividend. That's better than the annualised return of 10% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with 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. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Enterprise Bancorp you should know about.

Enterprise Bancorp is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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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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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