By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Columbia Financial, Inc. (NASDAQ:CLBK) share price is up 42% in the last three years, clearly besting the market return of around 22% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 23% in the last year.
Now it’s worth having a look at the company’s fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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).
Columbia Financial was able to grow its EPS at 52% per year over three years, sending the share price higher. The average annual share price increase of 12% is actually lower than the EPS growth. So it seems investors have become more cautious about the company, over time.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
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..
A Different Perspective
Pleasingly, Columbia Financial’s total shareholder return last year was 23%. That gain actually surpasses the 12% TSR it generated (per year) over three years. The improving returns to shareholders suggests the stock is becoming more popular with time. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we’ve discovered 1 warning sign for Columbia Financial that you should be aware of before investing here.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.