Meridian's (NASDAQ:MRBK) three-year total shareholder returns outpace the underlying earnings growth

It's been a soft week for Meridian Corporation (NASDAQ:MRBK) shares, which are down 13%. But that doesn't undermine the rather lovely longer-term return, if you measure over the last three years. Indeed, the share price is up a very strong 101% in that time. To some, the recent share price pullback wouldn't be surprising after such a good run. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.

While the stock has fallen 13% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

Check out our latest analysis for Meridian

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.

Meridian was able to grow its EPS at 33% per year over three years, sending the share price higher. This EPS growth is higher than the 26% average annual increase in the share price. So it seems investors have become more cautious about the company, over time. We'd venture the lowish P/E ratio of 7.05 also reflects the negative sentiment around the stock.

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

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. Dive deeper into the earnings by checking this interactive graph of Meridian'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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Meridian the TSR over the last 3 years was 130%, 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

We regret to report that Meridian shareholders are down 16% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 10%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. On the bright side, long term shareholders have made money, with a gain of 12% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Case in point: We've spotted 1 warning sign for Meridian you should be aware of.

Meridian 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 American 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.