Reflecting on Guaranty Federal Bancshares' (NASDAQ:GFED) Share Price Returns Over The Last Year
Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Guaranty Federal Bancshares, Inc. (NASDAQ:GFED) shareholders over the last year, as the share price declined 41%. That contrasts poorly with the market return of 15%. To make matters worse, the returns over three years have also been really disappointing (the share price is 34% lower than three years ago). Furthermore, it's down 10% in about a quarter. That's not much fun for holders. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
Check out our latest analysis for Guaranty Federal Bancshares
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Unhappily, Guaranty Federal Bancshares had to report a 11% decline in EPS over the last year. The share price decline of 41% is actually more than the EPS drop. So it seems the market was too confident about the business, a year ago. The less favorable sentiment is reflected in its current P/E ratio of 7.45.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
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. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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. As it happens, Guaranty Federal Bancshares' TSR for the last year was -39%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Investors in Guaranty Federal Bancshares had a tough year, with a total loss of 39% (including dividends), against a market gain of about 15%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 1.6%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Guaranty Federal Bancshares better, we need to consider many other factors. For example, we've discovered 3 warning signs for Guaranty Federal Bancshares (1 is a bit concerning!) 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: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
This article by Simply Wall St is general in nature. 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.
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