Passive investing in index funds can generate returns that roughly match the overall market. But you can do a lot better than that by buying good quality businesses for attractive prices. For example, the Southwest Georgia Financial Corporation (NYSEMKT:SGB) share price is 47% higher than it was five years ago, which is more than the market average. Over the last year the stock price is up, albeit only a modest 1.2%.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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).
Over half a decade, Southwest Georgia Financial managed to grow its earnings per share at 11% a year. This EPS growth is higher than the 8.0% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock. The reasonably low P/E ratio of 11.60 also suggests market apprehension.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It might be well worthwhile taking a look at our free report on Southwest Georgia Financial's earnings, revenue and cash flow.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Southwest Georgia Financial's TSR for the last 5 years was 66%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Southwest Georgia Financial shareholders are up 3.4% for the year (even including dividends). But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 11% per year for five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. Before spending more time on Southwest Georgia Financial it might be wise to click here to see if insiders have been buying or selling shares.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.