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In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Alerus Financial Corporation (NASDAQ:ALRS) shareholders, since the share price is down 31% in the last three years, falling well short of the market return of around 36%. Furthermore, it's down 11% in about a quarter. That's not much fun for holders. However, one could argue that the price has been influenced by the general market, which is down 11% in the same timeframe.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 three years that the share price fell, Alerus Financial's earnings per share (EPS) dropped by 39% each year. This fall in the EPS is worse than the 11% compound annual share price fall. So, despite the prior disappointment, shareholders must have some confidence the situation will improve, longer term.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Dive deeper into the earnings by checking this interactive graph of Alerus Financial'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. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Alerus Financial the TSR over the last 3 years was -22%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.