Stock Analysis

Would Shareholders Who Purchased Preferred Bank's (NASDAQ:PFBC) Stock Three Years Be Happy With The Share price Today?

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NasdaqGS:PFBC
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For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term Preferred Bank (NASDAQ:PFBC) shareholders, since the share price is down 40% in the last three years, falling well short of the market return of around 49%. And over the last year the share price fell 31%, so we doubt many shareholders are delighted. Contrary to the longer term story, the last month has been good for stockholders, with a share price gain of 8.2%. However, this may be a matter of broader market optimism, since stocks are up 12% in the same time.

Check out our latest analysis for Preferred Bank

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Although the share price is down over three years, Preferred Bank actually managed to grow EPS by 13% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

Revenue is actually up 7.6% over the three years, so the share price drop doesn't seem to hinge on revenue, either. This analysis is just perfunctory, but it might be worth researching Preferred Bank more closely, as sometimes stocks fall unfairly. This could present an opportunity.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth
NasdaqGS:PFBC Earnings and Revenue Growth December 3rd 2020

This free interactive report on Preferred Bank's balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. In the case of Preferred Bank, it has a TSR of -35% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Preferred Bank shareholders are down 28% for the year (even including dividends), but the market itself is up 25%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 4% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Preferred Bank better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Preferred Bank you should know about.

But note: Preferred Bank may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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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What are the risks and opportunities for Preferred Bank?

Preferred Bank provides various commercial banking products and services to small and mid-sized businesses and their owners, entrepreneurs, real estate developers and investors, professionals, and high net worth individuals in the United States.

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Rewards

  • Trading at 64% below our estimate of its fair value

  • Earnings are forecast to grow 2.16% per year

  • Earnings grew by 35.3% over the past year

Risks

  • Significant insider selling over the past 3 months

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