Low-cost index funds make it easy to achieve average market returns. But across the board there are plenty of stocks that underperform the market. Unfortunately for shareholders, while the Orrstown Financial Services, Inc. (NASDAQ:ORRF) share price is up 10% in the last three years, that falls short of the market return. Disappointingly, the share price is down 3.6% in the last year.
So let’s assess the underlying fundamentals over the last 3 years and see if they’ve moved in lock-step with shareholder returns.
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.
During three years of share price growth, Orrstown Financial Services achieved compound earnings per share growth of 8.6% per year. The average annual share price increase of 3% is actually lower than the EPS growth. So it seems investors have become more cautious about the company, over time.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Orrstown Financial Services, it has a TSR of 23% 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
While it’s never nice to take a loss, Orrstown Financial Services shareholders can take comfort that , including dividends,their trailing twelve month loss of 0.6% wasn’t as bad as the market loss of around 15%. Longer term investors wouldn’t be so upset, since they would have made 1.7%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It’s always interesting to track share price performance over the longer term. But to understand Orrstown Financial Services better, we need to consider many other factors. Even so, be aware that Orrstown Financial Services is showing 3 warning signs in our investment analysis , you should know about…
Orrstown Financial Services 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 US 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.
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