Investors in Bank of America (NYSE:BAC) have made a respectable return of 82% over the past five years

By
Simply Wall St
Published
April 19, 2022
NYSE:BAC
Source: Shutterstock

It hasn't been the best quarter for Bank of America Corporation (NYSE:BAC) shareholders, since the share price has fallen 16% in that time. But the silver lining is the stock is up over five years. However we are not very impressed because the share price is only up 64%, less than the market return of 100%.

Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

View our latest analysis for Bank of America

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. 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.

Over half a decade, Bank of America managed to grow its earnings per share at 16% a year. The EPS growth is more impressive than the yearly share price gain of 10% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. This cautious sentiment is reflected in its (fairly low) P/E ratio of 10.58.

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

earnings-per-share-growth
NYSE:BAC Earnings Per Share Growth April 19th 2022

We know that Bank of America has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Bank of America will grow revenue in the future.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Bank of America, it has a TSR of 82% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Bank of America has rewarded shareholders with a total shareholder return of 1.1% in the last twelve months. Of course, that includes the dividend. However, the TSR over five years, coming in at 13% per year, is even more impressive. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. It's always interesting to track share price performance over the longer term. But to understand Bank of America better, we need to consider many other factors. For example, we've discovered 2 warning signs for Bank of America that you should be aware of before investing here.

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.

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