Investing in First Financial Northwest (NASDAQ:FFNW) a year ago would have delivered you a 23% gain

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If you want to compound wealth in the stock market, you can do so by buying an index fund. But you can significantly boost your returns by picking above-average stocks. For example, the First Financial Northwest, Inc. (NASDAQ:FFNW) share price is up 20% in the last 1 year, clearly besting the market decline of around 7.0% (not including dividends). So that should have shareholders smiling. The longer term returns have not been as good, with the stock price only 0.8% higher than it was three years ago.

Let’s take a look at the underlying fundamentals over the longer term, and see if they’ve been consistent with shareholders returns.

Check out our latest analysis for First Financial Northwest

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 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.

First Financial Northwest was able to grow EPS by 45% in the last twelve months. This EPS growth is significantly higher than the 20% increase in the share price. So it seems like the market has cooled on First Financial Northwest, despite the growth. Interesting. This cautious sentiment is reflected in its (fairly low) P/E ratio of 11.65.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth

We know that First Financial Northwest has improved its bottom line lately, but is it going to grow revenue? If you’re interested, you could check this free report showing consensus revenue forecasts.

What About Dividends?

As well as measuring the share price return, investors should also consider the 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of First Financial Northwest, it has a TSR of 23% for the last 1 year. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

It’s good to see that First Financial Northwest has rewarded shareholders with a total shareholder return of 23% in the last twelve months. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 5% per year), it would seem that the stock’s performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Case in point: We’ve spotted 2 warning signs for First Financial Northwest you should be aware of, and 1 of them is a bit concerning.

Of course First Financial Northwest may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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