Yahoo Finance The five-year underlying earnings growth at Eagle Bancorp (NASDAQ:EGBN) is promising, but the shareholders are still in the red over that time
The main aim of stock picking is to find the market-beating stocks. But the main game is to find enough winners to more than offset the losers So we wouldn't blame long term Eagle Bancorp, Inc. (NASDAQ:EGBN) shareholders for doubting their decision to hold, with the stock down 13% over a half decade. The share price has dropped 19% in three months. However, one could argue that the price has been influenced by the general market, which is down 16% in the same timeframe.
If the past week is anything to go by, investor sentiment for Eagle Bancorp isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
View our latest analysis for Eagle Bancorp
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...' One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
While the share price declined over five years, Eagle Bancorp actually managed to increase EPS by an average of 13% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.
Generally speaking we'd expect to see stronger share price increases on the back of sustained EPS growth, but other metrics may hold a clue to why the share price performance is relatively modest.
Revenue is actually up 5.0% over the time period. So it seems one might have to take closer look at the fundamentals to understand why the share price languishes. After all, there may be an opportunity.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We know that Eagle Bancorp has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for Eagle Bancorp in this interactive graph of future profit estimates.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Eagle Bancorp's TSR for the last 5 years was -6.0%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While it's never nice to take a loss, Eagle Bancorp shareholders can take comfort that , including dividends,their trailing twelve month loss of 5.0% wasn't as bad as the market loss of around 9.4%. Unfortunately, last year's performance may indicate unresolved challenges, given that it's worse than the annualised loss of 1.2% over the last half decade. While some investors do well specializing in buying companies that are struggling (but nonetheless undervalued), don't forget that Buffett said that 'turnarounds seldom turn'. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 2 warning signs for Eagle Bancorp you should be aware of, and 1 of them can't be ignored.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
