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It hasn't been the best quarter for Bank of America Corporation (NYSE:BAC) shareholders, since the share price has fallen 12% in that time. On the bright side the share price is up over the last half decade. However we are not very impressed because the share price is only up 82%, less than the market return of 102%.
Since the stock has added US$9.0b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During five years of share price growth, Bank of America achieved compound earnings per share (EPS) growth of 7.2% per year. This EPS growth is lower than the 13% 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. And that's hardly shocking given the track record of growth.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Bank of America has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
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 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. In the case of Bank of America, it has a TSR of 106% 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
It's good to see that Bank of America has rewarded shareholders with a total shareholder return of 12% in the last twelve months. That's including the dividend. Having said that, the five-year TSR of 16% a year, is even better. If you would like to research Bank of America in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.