The main point of investing for the long term is to make money. But more than that, you probably want to see it rise more than the market average. But Old National Bancorp (NASDAQ:ONB) has fallen short of that second goal, with a share price rise of 54% over five years, which is below the market return. Zooming in, the stock is up a respectable 11% in the last year.
While the stock has fallen 3.2% this week, it’s worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.
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.
During five years of share price growth, Old National Bancorp achieved compound earnings per share (EPS) growth of 4.1% per year. This EPS growth is lower than the 9% average annual increase in the share price. So it’s fair to assume the market has a higher opinion of the business than it did five years ago. That’s not necessarily surprising considering the five-year track record of earnings growth.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
Dive deeper into Old National Bancorp’s key metrics by checking this interactive graph of Old National Bancorp’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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Old National Bancorp the TSR over the last 5 years was 82%, 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
Old National Bancorp shareholders are up 14% for the year (even including dividends). Unfortunately this falls short of the market return. On the bright side, that’s still a gain, and it’s actually better than the average return of 13% over half a decade It is possible that returns will improve along with the business fundamentals. 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 Old National Bancorp that you should be aware of before investing here.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
