Provident Financial Services (NYSE:PFS) stock performs better than its underlying earnings growth over last five years
In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But even the best stock picker will only win with some selections. So we wouldn't blame long term Provident Financial Services, Inc. (NYSE:PFS) shareholders for doubting their decision to hold, with the stock down 11% over a half decade.
While the stock has risen 3.2% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.
Check out our latest analysis for Provident Financial Services
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
While the share price declined over five years, Provident Financial Services actually managed to increase EPS by an average of 9.1% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.
It is unusual to see such modest share price growth in the face of sustained EPS improvements. We can look to other metrics to try to understand the situation better.
The steady dividend doesn't really explain why the share price is down. While it's not completely obvious why the share price is down, a closer look at the company's history might help explain it.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. So it makes a lot of sense to check out what analysts think Provident Financial Services will earn in the future (free profit 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Provident Financial Services the TSR over the last 5 years was 11%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
We're pleased to report that Provident Financial Services shareholders have received a total shareholder return of 15% over one year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 2%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Provident Financial Services better, we need to consider many other factors. Take risks, for example - Provident Financial Services has 1 warning sign we think you should be aware of.
Of course Provident Financial Services 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
