By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. Just take a look at MainStreet Bancshares, Inc. (NASDAQ:MNSB), which is up 68%, over three years, soundly beating the market return of 40% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 4.1% in the last year.
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 three years of share price growth, MainStreet Bancshares achieved compound earnings per share growth of 27% per year. The average annual share price increase of 19% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock.
The graphic below depicts how EPS has changed over time.
We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free interactive report on MainStreet Bancshares’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
MainStreet Bancshares shareholders are up 4.1% for the year. Unfortunately this falls short of the market return of around 16%. But the (superior) three-year TSR of 19% per year is some consolation. We prefer focus on longer term returns, as they are usually a more meaningful indication of the underlying business. Before deciding if you like the current share price, check how MainStreet Bancshares scores on these 3 valuation metrics.
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.
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 firstname.lastname@example.org. 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.