For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Veritex Holdings, Inc. (NASDAQ:VBTX) shareholders have had that experience, with the share price dropping 38% in three years, versus a market return of about 20%.

While the last three years has been tough for Veritex Holdings shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

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.

During the three years that the share price fell, Veritex Holdings' earnings per share (EPS) dropped by 5.6% each year. This reduction in EPS is slower than the 15% annual reduction in the share price. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Dive deeper into Veritex Holdings' key metrics by checking this interactive graph of Veritex Holdings's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Veritex Holdings' TSR for the last 3 years was -32%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Veritex Holdings shareholders are up 19% for the year (even including dividends). But that return falls short of the market. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 1.0% endured over half a decade. It could well be that the business is stabilizing. 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 - Veritex Holdings has 2 warning signs we think you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com