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For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term Enterprise Bancorp, Inc. (NASDAQ:EBTC) shareholders, since the share price is down 32% in the last three years, falling well short of the market return of around 9.9%. The more recent news is of little comfort, with the share price down 24% in a year. The falls have accelerated recently, with the share price down 29% in the last three months. But this could be related to the weak market, which is down 24% in the same period.
See our latest analysis for Enterprise 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...' 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 the unfortunate three years of share price decline, Enterprise Bancorp actually saw its earnings per share (EPS) improve by 19% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.
It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.
Revenue is actually up 8.9% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Enterprise Bancorp further; while we may be missing something on this analysis, there might also 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 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. It might be well worthwhile taking a look at our free report on Enterprise 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Enterprise Bancorp the TSR over the last 3 years was -28%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!