When we invest, we’re generally looking for stocks that outperform the market average. Buying under-rated businesses is one path to excess returns. For example, the Popular, Inc. (NASDAQ:BPOP) share price is up 70% in the last 5 years, clearly besting the market return of around 50% (ignoring dividends). On the other hand, the more recent gains haven’t been so impressive, with shareholders gaining just 4.1% , including dividends .
View our latest analysis for Popular
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 the five years of share price growth, Popular moved from a loss to profitability. That’s generally thought to be a genuine positive, so we would expect to see an increasing share price. Since the company was unprofitable five years ago, but not three years ago, it’s worth taking a look at the returns in the last three years, too. We can see that the Popular share price is up 27% in the last three years. Meanwhile, EPS is up 50% per year. This EPS growth is higher than the 8.3% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. This unenthusiastic sentiment is reflected in the stock’s reasonably modest P/E ratio of 8.12.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Popular has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Popular’s TSR for the last 5 years was 87%, 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
Popular provided a TSR of 4.1% over the last twelve months. Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 13% per year for five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. It’s always interesting to track share price performance over the longer term. But to understand Popular better, we need to consider many other factors. Like risks, for instance. Every company has them, and we’ve spotted 2 warning signs for Popular (of which 1 makes us a bit uncomfortable!) you should know about.
Of course Popular may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
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February 01, 2020 at 09:14PM
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If You Had Bought Popular (NASDAQ:BPOP) Shares Five Years Ago You’d Have Made 70% - Simply Wall St
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