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The main point of investing for the long term is to make money. Furthermore, you'd generally like to see the share price rise faster than the market. But Orrstown Financial Services, Inc. (NASDAQ:ORRF) has fallen short of that second goal, with a share price rise of 66% over five years, which is below the market return. On a brighter note, more newer shareholders are probably rather content with the 24% share price gain over twelve months.
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.
See our latest analysis for Orrstown Financial Services
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Orrstown Financial Services' earnings per share are down 10.0% per year, despite strong share price performance over five years.
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.
In contrast revenue growth of 7.2% per year is probably viewed as evidence that Orrstown Financial Services is growing, a real positive. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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, Orrstown Financial Services' TSR for the last 5 years was 97%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Orrstown Financial Services shareholders have received returns of 27% over twelve months (even including dividends), which isn't far from the general market return. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 15%. It is possible that management foresight will bring growth well into the future, even if the share price slows down. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - Orrstown Financial Services has 4 warning signs (and 1 which is significant) we think you should know about.