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. Unfortunately for shareholders, while the Sound Financial Bancorp, Inc. (NASDAQ:SFBC) share price is up 47% in the last five years, that’s less than the market return. On a brighter note, more newer shareholders are probably rather content with the 34% share price gain over twelve months.
Let’s take a look at the underlying fundamentals over the longer term, and see if they’ve been consistent with shareholders returns.
See our latest analysis for Sound Financial Bancorp
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.
Sound Financial Bancorp’s earnings per share are down 9.7% 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.
We doubt the modest 1.4% dividend yield is attracting many buyers to the stock. In contrast revenue growth of 4.5% per year is probably viewed as evidence that Sound Financial Bancorp is growing, a real positive. It’s quite possible that management are prioritizing revenue growth over EPS growth at the moment.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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, Sound Financial Bancorp’s TSR for the last 5 years was 63%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
We’re pleased to report that Sound Financial Bancorp shareholders have received a total shareholder return of 36% over one year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 10%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we’ve discovered 4 warning signs for Sound Financial Bancorp (1 is significant!) that you should be aware of before investing here.
