Investing in Bank of America (NYSE:BAC) five years ago would have delivered you a 117% gain

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The main point of investing for the long term is to make money. But more than that, you probably want to see it rise more than the market average. But Bank of America Corporation (NYSE:BAC) has fallen short of that second goal, with a share price rise of 96% over five years, which is below the market return. However, more recent buyers should be happy with the increase of 47% over the last year.

So let’s assess the underlying fundamentals over the last 5 years and see if they’ve moved in lock-step with shareholder returns.

See our latest analysis for Bank of America

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. 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).

During five years of share price growth, Bank of America achieved compound earnings per share (EPS) growth of 20% per year. This EPS growth is higher than the 14% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock.

The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).

NYSE:BAC Earnings Per Share Growth January 1st 2022

We know that Bank of America has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Bank of America will grow revenue in the future.

What About Dividends?

When looking at 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Bank of America the TSR over the last 5 years was 117%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It’s good to see that Bank of America has rewarded shareholders with a total shareholder return of 50% in the last twelve months. That’s including the dividend. That’s better than the annualised return of 17% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Even so, be aware that Bank of America is showing 1 warning sign in our investment analysis , you should know about…

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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.