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The simplest way to benefit from a rising market is to buy an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in BankUnited, Inc. (NYSE:BKU) have tasted that bitter downside in the last year, as the share price dropped 35%. That's well below the market return of 15%. Longer term investors have fared much better, since the share price is up 5.0% in three years.
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.
Check out our latest analysis for BankUnited
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Unfortunately BankUnited reported an EPS drop of 14% for the last year. The share price decline of 35% is actually more than the EPS drop. Unsurprisingly, given the lack of EPS growth, the market seems to be more cautious about the stock. The less favorable sentiment is reflected in its current P/E ratio of 7.01.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
Dive deeper into BankUnited's key metrics by checking this interactive graph of BankUnited'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. We note that for BankUnited the TSR over the last 1 year was -33%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
BankUnited shareholders are down 33% for the year (even including dividends), but the market itself is up 15%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 4% over the last half decade. 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. It's always interesting to track share price performance over the longer term. But to understand BankUnited better, we need to consider many other factors. For instance, we've identified 1 warning sign for BankUnited that you should be aware of.