Why is the Bank of Queensland (ASX:BOQ) share price underperforming the big four lately?

The regional bank has been inching lower of late. We take a closer look

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The Bank of Queensland Ltd (ASX: BOQ) share price has had a rollercoaster journey in the past 3 months of trading.

At the time of writing, the Bank of Queensland share price is edging higher, up 0.44% to $9.17.

However, shares in the bank have been lagging the broader ASX financials sector lately.

Whereas the S&P/ASX 200 Financials index (ASX: XFJ) has climbed around 5% in the last month, the Queensland banking giant’s shares have gained less than 1%.

What’s with the Bank of Queensland share price lately?

Even though it has lagged its ASX financials peers of late, Bank of Queensland shares still nudged their 52-week closing high on 7 October.

However, the regional bank’s shares have been sold off with authority in the past 2 weeks. Its share price has decreased by 6% in that time.

This came after the release of Bank of Queensland’s FY21 results around 3 weeks ago.

In its report, the company recorded just over 80% year-on-year increase in cash net profit, enabling it to increase the full-year dividend to 39 cents per share – a gain of more than 200% from the year prior.

Although these figures came in ahead of the consensus of analyst estimates on the bank’s earnings, it wasn’t enough to overshadow the company’s meagre earnings outlook for FY22.

As interest rates continue to remain bottom-heavy into the near future, Bank of Queensland’s management anticipates contraction of its net interest margin in the range of 5–7 basis points.

The impact ultimately flows through to affect the level of earnings entitled to equity holders, via the earnings per share (EPS) metric.

Why is this important?

According to investing hall-of-famers Peter Lynch and Warren Buffett, this could all boil down to how the market prices securities.

Lynch, in his book One Up on Wall Street, and Buffett submit that market participants will generally price shares based on a combination of past earnings history, and especially, future earnings expectations.

As a rule of thumb, the higher the expected future earnings, the more likely a company’s share price will positively reflect this in the form of outsized returns.

Apparently, this point has some influence over the unseen hands of supply and demand, and on a share’s valuation.

Both legendary investors suggest that companies with higher expected cash flows into the future may be of a higher value to the investor today.

One study even showed that shares can actually provide excess returns for 13 to 26 weeks on average after a positive earnings surprise.

Hence, given the market is also quite efficient in its pricing mechanisms, it appears the market is continuing to price in the effects of the bank’s earnings revision.

In the absence of any other price-sensitive information during that time, it appears investors may be partially spooked on this new outlook of earnings for Bank of Queensland shares.

The Bank of Queensland share price is up 21.5% this year to date, after climbing 42% in the last 12 months.

Should you invest $1,000 in Bank of Queensland right now?

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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