One simple way to benefit from the stock market is to buy an index fund. But if you pick the right individual stocks, you could make more than that. Just take a look at Provident Bancorp, Inc. (NASDAQ:PVBC), which is up 62%, over three years, soundly beating the market return of 37% (not including dividends).
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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, Provident Bancorp achieved compound earnings per share growth of 36% per year. The average annual share price increase of 18% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Dive deeper into Provident Bancorp’s key metrics by checking this interactive graph of Provident Bancorp’s earnings, revenue and cash flow.
A Different Perspective
Provident Bancorp shareholders are down 16% for the year, but the broader market is up 8.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Fortunately the longer term story is brighter, with total returns averaging about 18% per year over three years. Sometimes when a good quality long term winner has a weak period, it’s turns out to be an opportunity, but you really need to be sure that the quality is there. Before deciding if you like the current share price, check how Provident Bancorp scores on these 3 valuation metrics.
Of course Provident Bancorp may not be the best stock to buy. So you may wish to see this free collection of growth stocks.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 email@example.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.