Investing in BNK Banking (ASX:BBC) three years ago would have delivered you a 6.8% gain

While not a mind-blowing move, it is good to see that the BNK Banking Corporation Limited (ASX:BBC) share price has gained 11% in the last three months. But that doesn't change the fact that the returns over the last three years have been less than pleasing. Truth be told the share price declined 46% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.

Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.

View our latest analysis for BNK Banking

Given that BNK Banking didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

Over the last three years, BNK Banking's revenue dropped 33% per year. That's definitely a weaker result than most pre-profit companies report. On the face of it we'd posit the share price fall of 13% compound, over three years is well justified by the fundamental deterioration. It would probably be worth asking whether the company can fund itself to profitability. Of course, it is possible for businesses to bounce back from a revenue drop - but we'd want to see that before getting interested.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

earnings-and-revenue-growth

Take a more thorough look at BNK Banking's financial health with this free report on its balance sheet.

What About The Total Shareholder Return (TSR)?

We've already covered BNK Banking's share price action, but we should also mention its 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. We note that BNK Banking's TSR, at 6.8% is higher than its share price return of -46%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.

A Different Perspective

BNK Banking shareholders are down 12% for the year, but the market itself is up 7.5%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 3%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand BNK Banking better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with BNK Banking (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

But note: BNK Banking may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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