First Abu Dhabi Bank P.J.S.C's (ADX:FAB) five-year total shareholder returns outpace the underlying earnings growth

By
Simply Wall St
Published
April 15, 2022
ADX:FAB
Source: Shutterstock

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But on a lighter note, a good company can see its share price rise well over 100%. For instance, the price of First Abu Dhabi Bank P.J.S.C. (ADX:FAB) stock is up an impressive 110% over the last five years. On top of that, the share price is up 18% in about a quarter. But this move may well have been assisted by the reasonably buoyant market (up 16% in 90 days).

Although First Abu Dhabi Bank P.J.S.C has shed د.إ14b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

See our latest analysis for First Abu Dhabi Bank P.J.S.C

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

During five years of share price growth, First Abu Dhabi Bank P.J.S.C achieved compound earnings per share (EPS) growth of 1.3% per year. This EPS growth is slower than the share price growth of 16% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
ADX:FAB Earnings Per Share Growth April 15th 2022

We know that First Abu Dhabi Bank P.J.S.C has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, First Abu Dhabi Bank P.J.S.C's TSR for the last 5 years was 167%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

First Abu Dhabi Bank P.J.S.C provided a TSR of 61% over the year (including dividends). That's fairly close to the broader market return. That gain looks pretty satisfying, and it is even better than the five-year TSR of 22% per year. It is possible that management foresight will bring growth well into the future, even if the share price slows down. Before deciding if you like the current share price, check how First Abu Dhabi Bank P.J.S.C scores on these 3 valuation metrics.

Of course First Abu Dhabi Bank P.J.S.C 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 AE exchanges.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.