It hasn't been the best quarter for AB Dynamics plc (LON:ABDP) shareholders, since the share price has fallen 30% in that time. Looking further back, the stock has generated good profits over five years. Its return of 100% has certainly bested the market return! While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 41% drop, in the last year.
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
AB Dynamics' earnings per share are down 9.9% per year, despite strong share price performance over five years.
Essentially, it doesn't seem likely that investors are focused on EPS. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
We doubt the modest 0.4% dividend yield is attracting many buyers to the stock. On the other hand, AB Dynamics' revenue is growing nicely, at a compound rate of 24% over the last five years. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of AB Dynamics, it has a TSR of 103% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Investors in AB Dynamics had a tough year, with a total loss of 41% (including dividends), against a market gain of about 5.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 15% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand AB Dynamics better, we need to consider many other factors. Even so, be aware that AB Dynamics is showing 2 warning signs in our investment analysis , you should know about...
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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 GB exchanges.
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.