Yahoo Finance Eastern Bankshares (NASDAQ:EBC) shareholders notch a 35% return over 1 year, yet earnings have been shrinking
Passive investing in index funds can generate returns that roughly match the overall market. But if you pick the right individual stocks, you could make more than that. For example, the Eastern Bankshares, Inc. (NASDAQ:EBC) share price is up 33% in the last 1 year, clearly besting the market return of around 15% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! We'll need to follow Eastern Bankshares for a while to get a better sense of its share price trend, since it hasn't been listed for particularly long.
The past week has proven to be lucrative for Eastern Bankshares investors, so let's see if fundamentals drove the company's one-year performance.
View our latest analysis for Eastern Bankshares
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.
Over the last twelve months, Eastern Bankshares actually shrank its EPS by 17%.
This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
We are skeptical of the suggestion that the 1.5% dividend yield would entice buyers to the stock. However the year on year revenue growth of 15% would help. We do see some companies suppress earnings in order to accelerate revenue growth.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
If you are thinking of buying or selling Eastern Bankshares stock, you should check out this FREE detailed report on its balance sheet.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. As it happens, Eastern Bankshares' TSR for the last 1 year was 35%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that Eastern Bankshares shareholders have gained 35% over the last year, including dividends. The more recent returns haven't been as impressive as the longer term returns, coming in at just 1.6%. It seems likely the market is waiting on fundamental developments with the business before pushing the share price higher (or lower). It's always interesting to track share price performance over the longer term. But to understand Eastern Bankshares better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Eastern Bankshares you should know about.
We will like Eastern Bankshares better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
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.
