German American Bancorp's (NASDAQ:GABC) three-year total shareholder returns outpace the underlying earnings growth

Low-cost index funds make it easy to achieve average market returns. But in any diversified portfolio of stocks, you'll see some that fall short of the average. For example, the German American Bancorp, Inc. (NASDAQ:GABC) share price return of 15% over three years lags the market return in the same period. Unfortunately, the share price has fallen 6.2% over twelve months.

Although German American Bancorp has shed US$60m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

Before we look at the performance, you might like to know that our analysis indicates that GABC is potentially undervalued!

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

German American Bancorp was able to grow its EPS at 4.1% per year over three years, sending the share price higher. We note that the 5% yearly (average) share price gain isn't too far from the EPS growth rate. Coincidence? Probably not. This observation indicates that the market's attitude to the business hasn't changed all that much. Rather, the share price has approximately tracked EPS growth.

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

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Dive deeper into the earnings by checking this interactive graph of German American Bancorp's earnings, revenue and cash flow.

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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of German American Bancorp, it has a TSR of 23% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

Although it hurts that German American Bancorp returned a loss of 4.0% in the last twelve months, the broader market was actually worse, returning a loss of 21%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 1.2% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. It's always interesting to track share price performance over the longer term. But to understand German American Bancorp better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with German American Bancorp .

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.

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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.