In this article:
Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, the United Overseas Bank Limited (SGX:U11) share price is up 45% in the last 5 years, clearly besting the market decline of around 10.0% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 43%, including dividends.
Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
Check out our latest analysis for United Overseas Bank
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.
During the five years of share price growth, United Overseas Bank moved from a loss to profitability. That would generally be considered a positive, so we'd hope to see the share price to rise.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. It might be well worthwhile taking a look at our free report on United Overseas Bank'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. In the case of United Overseas Bank, it has a TSR of 86% 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
We're pleased to report that United Overseas Bank shareholders have received a total shareholder return of 43% over one year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 13%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Even so, be aware that United Overseas Bank is showing 1 warning sign in our investment analysis , you should know about...