Passive investing in index funds can generate returns that roughly match the overall market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the Premier Financial Corp. (NASDAQ:PFC) share price is 41% higher than it was a year ago, much better than the market return of around 21% (not including dividends) in the same period. That's a solid performance by our standards! The longer term returns have not been as good, with the stock price only 9.3% higher than it was three years ago.
Although Premier Financial has shed US$51m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.
See our latest analysis for Premier Financial
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
During the last year Premier Financial grew its earnings per share (EPS) by 149%. This EPS growth is significantly higher than the 41% increase in the share price. Therefore, it seems the market isn't as excited about Premier Financial as it was before. This could be an opportunity. This cautious sentiment is reflected in its (fairly low) P/E ratio of 8.66.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Dive deeper into the earnings by checking this interactive graph of Premier Financial's earnings, revenue and cash flow.
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 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, Premier Financial's TSR for the last 1 year was 46%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.