It might be of some concern to shareholders to see the Merchants Bancorp (NASDAQ:MBIN) share price down 18% in the last month. But that scarcely detracts from the really solid long term returns generated by the company over five years. We think most investors would be happy with the 212% return, over that period. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. Only time will tell if there is still too much optimism currently reflected in the share price.

Since the long term performance has been good but there's been a recent pullback of 17%, let's check if the fundamentals match the share price.

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and 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.

Over half a decade, Merchants Bancorp managed to grow its earnings per share at 35% a year. The EPS growth is more impressive than the yearly share price gain of 26% over the same period. So it seems the market isn't so enthusiastic about the stock these days. The reasonably low P/E ratio of 6.22 also suggests market apprehension.

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

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free interactive report on Merchants Bancorp's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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 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 Merchants Bancorp, it has a TSR of 230% 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

Merchants Bancorp shareholders are up 15% for the year (even including dividends). But that was short of the market average. On the bright side, the longer term returns (running at about 27% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. 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. To that end, you should be aware of the 2 warning signs we've spotted with Merchants Bancorp .

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of undervalued small cap 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 American 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.