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Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, you risk returning less than the market. We regret to report that long term BCB Bancorp, Inc. (NASDAQ:BCBP) shareholders have had that experience, with the share price dropping 49% in three years, versus a market return of about 22%. The falls have accelerated recently, with the share price down 20% in the last three months. But this could be related to the weak market, which is down 11% in the same period.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
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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. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the three years that the share price fell, BCB Bancorp's earnings per share (EPS) dropped by 20% each year. So do you think it's a coincidence that the share price has dropped 20% per year, a very similar rate to the EPS? We don't. That suggests that the market sentiment around the company hasn't changed much over that time, despite the disappointment. Rather, the share price has approximately tracked EPS growth.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of BCB Bancorp's earnings, revenue and cash flow.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, BCB Bancorp's TSR for the last 3 years was -41%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.