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This week we saw the Secure Trust Bank PLC (LON:STB) share price climb by 29%. But that doesn't change the fact that the returns over the last half decade have been disappointing. The share price has failed to impress anyone , down a sizable 71% during that time. So is the recent increase sufficient to restore confidence in the stock? Not yet. We'd err towards caution given the long term under-performance.
While the last five years has been tough for Secure Trust Bank shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.
Check out our latest analysis for Secure Trust Bank
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...' 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).
During the five years over which the share price declined, Secure Trust Bank's earnings per share (EPS) dropped by 4.9% each year. This reduction in EPS is less than the 22% annual reduction in the share price. This implies that the market is more cautious about the business these days. The low P/E ratio of 3.53 further reflects this reticence.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. 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 Secure Trust Bank's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Secure Trust Bank, it has a TSR of -65% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market gained around 13% in the last year, Secure Trust Bank shareholders lost 30% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 10% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. For example, we've discovered 2 warning signs for Secure Trust Bank (1 makes us a bit uncomfortable!) that you should be aware of before investing here.