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Buying a low-cost index fund will get you the average market return. But in any diversified portfolio of stocks, you'll see some that fall short of the average. For example, the UMB Financial Corporation (NASDAQ:UMBF) share price return of 17% over three years lags the market return in the same period. Unfortunately, the share price has fallen 14% over twelve months.
Check out our latest analysis for UMB Financial
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).
UMB Financial was able to grow its EPS at 18% per year over three years, sending the share price higher. This EPS growth is higher than the 5.2% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of UMB Financial, it has a TSR of 22% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
UMB Financial shareholders are down 12% for the year (even including dividends), but the market itself is up 7.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 4.5% per year over half a decade. 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 is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.