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Investors in Old Point Financial (NASDAQ:OPOF) have unfortunately lost 31% in the last three years
For many investors, the main goal of stock selection is to generate higher returns than the overall market. But if you try to pick stocks, you risk returning less than the market. Unfortunately, this has been the case for the long term Old Point Financial Corporation (NASDAQ:OPOF) shareholders, as the share price has fallen 36% in the last three years, falling far short of the market return of around 21%. The declines have accelerated recently, with the share price falling 13% in the last three months. This may be related to recent financial results – you can follow the latest data by reading our company report.
With this in mind, it is worth checking whether the company’s underlying fundamentals have been drivers of long-term performance or whether there are some discrepancies.
See our latest analysis for Old Point Financial
Although the efficient markets hypothesis continues to be taught by some, it has been proven that markets are overly reactive dynamic systems and that investors are not always rational. 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.
Old Point Financial has seen its earnings per share fall at a compound rate of 2.9% per year over the past three years. The 14% drop in share price is actually steeper than the EPS slippage. Therefore, the drop in earnings per share is likely to have disappointed the market, leaving investors hesitant to buy. This greater caution is also evident in the very low P/E ratio, which stands at 11.82.
The image below shows how EPS has tracked over time (if you click on the image you can see more details).
earnings per share growth
Maybe it’s worth taking a look at our free Old Point Financial earnings, revenue and cash flow report.
What about dividends?
When analyzing investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It’s fair to say that the TSR gives a more complete picture of dividend-paying stocks. We note that for Old Point Financial the TSR over the last 3 years was -31%, which is better than the share price return mentioned above. And there’s no prize in guessing that dividend payments largely explain the divergence!
A different perspective
Old Point Financial investors had a tough year, with a total loss of 14% (including dividends) versus a market gain of around 28%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve-month period. Regrettably, last year’s performance caps off a bad run, with shareholders facing a total loss of 4% per year for five years. Generally speaking, long-term share price weakness can be a bad sign, although contrarian investors may want to research the stock in hopes of a recovery. I find it very interesting to look at share price over the long term as an indicator of business performance. But to truly gain insights, we need to consider other information as well. Case in point: we identified 2 Warning Signs for Old Point Financial you must be aware.
The story continues
If you like buying stocks alongside management then you might love this free list of companies. (Tip: many of them go unnoticed AND have attractive valuations).
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 Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your objectives or financial situation. Our goal is to bring you long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St has no position in any of the stocks mentioned.