Abu Dhabi National Energy Company PJSC's (ADX:TAQA) three-year total shareholder returns outpace the underlying earnings growth

July 04, 2023

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But if you buy shares in a really great company, you can more than double your money. For instance the Abu Dhabi National Energy Company PJSC (ADX:TAQA) share price is 290% higher than it was three years ago. Most would be happy with that. It's also up 13% in about a month.

While the stock has fallen 4.8% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

Check out our latest analysis for Abu Dhabi National Energy Company PJSC

SWOT Analysis for Abu Dhabi National Energy Company PJSC

Strength

Earnings growth over the past year exceeded the industry.

Debt is well covered by earnings and cashflows.

Balance sheet summary for TAQA.

Weakness

Dividend is low compared to the top 25% of dividend payers in the Integrated Utilities market.

What are analysts forecasting for TAQA?

Opportunity

Good value based on P/E ratio compared to estimated Fair P/E ratio.

Threat

No apparent threats visible for TAQA.

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).

Abu Dhabi National Energy Company PJSC was able to grow its EPS at 59% per year over three years, sending the share price higher. This EPS growth is remarkably close to the 57% average annual increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Au contraire, the share price change has arguably mimicked the EPS 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:TAQA Earnings Per Share Growth July 4th 2023

We know that Abu Dhabi National Energy Company PJSC has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. 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 National Energy Company PJSC the TSR over the last 3 years was 320%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Pleasingly, Abu Dhabi National Energy Company PJSC's total shareholder return last year was 181%. That includes the value of the dividend. That gain actually surpasses the 61% TSR it generated (per year) over three years. The improving returns to shareholders suggests the stock is becoming more popular with time. It's always interesting to track share price performance over the longer term. But to understand Abu Dhabi National Energy Company PJSC better, we need to consider many other factors. Even so, be aware that Abu Dhabi National Energy Company PJSC is showing 3 warning signs in our investment analysis , and 1 of those is a bit concerning...

Of course Abu Dhabi National Energy Company PJSC 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 Emirian 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.