When you buy shares in a company, it’s worth keeping in mind the possibility that it could fail, and you could lose your money. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Bank of America Corporation (NYSE:BAC) share price has soared 101% in the last half decade. Most would be very happy with that. On top of that, the share price is up 14% in about a quarter.
View our latest analysis for Bank of America
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
During five years of share price growth, Bank of America achieved compound earnings per share (EPS) growth of 47% per year. The EPS growth is more impressive than the yearly share price gain of 15% over the same period. So it seems the market isn’t so enthusiastic about the stock these days.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
NYSE:BAC Past and Future Earnings, December 11th 2019
We know that Bank of America has improved its bottom line lately, but is it going to grow revenue? If you’re interested, you could check this free report showing consensus revenue forecasts.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Bank of America’s TSR for the last 5 years was 118%, which exceeds the share price return mentioned earlier. 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 40% in the last twelve months. Of course, that includes the dividend. That’s better than the annualised return of 17% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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.
But note: Bank of America may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
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