Stock Analysis

Abu Dhabi Islamic Bank PJSC (ADX:ADIB) Long Term Shareholders are 8.0% In The Black

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ADX:ADIB
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Ideally, your overall portfolio should beat the market average. But even in a market-beating portfolio, some stocks will lag the market. While the Abu Dhabi Islamic Bank PJSC (ADX:ADIB) share price is down 29% over half a decade, the total return to shareholders (which includes dividends) was 8.0%. And that total return actually beats the market decline of 14%. And it's not just long term holders hurting, because the stock is down 27% in the last year. It's up 1.1% in the last seven days.

Check out our latest analysis for Abu Dhabi Islamic Bank PJSC

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the unfortunate half decade during which the share price slipped, Abu Dhabi Islamic Bank PJSC actually saw its earnings per share (EPS) improve by 2.6% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.

By glancing at these numbers, we'd posit that the the market had expectations of much higher growth, five years ago. Looking to other metrics might better explain the share price change.

We note that the dividend has remained healthy, so that wouldn't really explain the share price drop. It's not immediately clear to us why the stock price is down but further research might provide some answers.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth
ADX:ADIB Earnings and Revenue Growth August 3rd 2020

Take a more thorough look at Abu Dhabi Islamic Bank PJSC's financial health with this free report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Abu Dhabi Islamic Bank PJSC the TSR over the last 5 years was 8.0%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While the broader market lost about 9.6% in the twelve months, Abu Dhabi Islamic Bank PJSC shareholders did even worse, losing 20% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 1.6% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Abu Dhabi Islamic Bank PJSC better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Abu Dhabi Islamic Bank PJSC you should be aware of.

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

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