Is Hawthorn Bancshares’s (NASDAQ:HWBK) 149% Share Price Increase Well Justified?

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When you buy shares in a company, it’s worth keeping in mind the possibility that it could fail, and you could lose your money. But on a lighter note, a good company can see its share price rise well over 100%. One great example is Hawthorn Bancshares, Inc. (NASDAQ:HWBK) which saw its share price drive 149% higher over five years. Also pleasing for shareholders was the 18% gain in the last three months.

See our latest analysis for Hawthorn Bancshares

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 five years of share price growth, Hawthorn Bancshares achieved compound earnings per share (EPS) growth of 15% per year. This EPS growth is lower than the 20% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that’s hardly shocking given the track record of growth.

The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).

NasdaqGS:HWBK Past and Future Earnings, June 22nd 2019
NasdaqGS:HWBK Past and Future Earnings, June 22nd 2019

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of Hawthorn Bancshares’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. 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. We note that for Hawthorn Bancshares the TSR over the last 5 years was 168%, which is better than the share price return mentioned above. And there’s no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It’s nice to see that Hawthorn Bancshares shareholders have received a total shareholder return of 27% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 22%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.