Investing in Wintrust Financial (NASDAQ:WTFC) five years ago would have delivered you a 218% gain
Wintrust Financial (NASDAQ:WTFC) has seen a remarkable 218% total shareholder return (TSR) over the past five years, with a share price increase of 192%. The company's earnings per share (EPS) grew at an annual rate of 18%, which is lower than the share price growth of 24%, indicating a positive market perception. Despite a recent TSR of 24% over the last year, it falls short of the five-year average of 26%. The divergence in TSR and share price return is largely attributed to dividend payments. Investors should be aware of one warning sign regarding the company.
When you buy a stock there is always a possibility that it could drop 100%. But on a lighter note, a good company can see its share price rise well over 100%. For instance, the price of Wintrust Financial Corporation (NASDAQ:WTFC) stock is up an impressive 192% over the last five years.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, Wintrust Financial achieved compound earnings per share (EPS) growth of 18% per year. This EPS growth is lower than the 24% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Wintrust Financial has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Wintrust Financial, it has a TSR of 218% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's nice to see that Wintrust Financial shareholders have received a total shareholder return of 24% over the last year. And that does include the dividend. However, that falls short of the 26% TSR per annum it has made for shareholders, each year, over five years. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - Wintrust Financial has 1 warning sign we think you should be aware of.
For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
