The one-year underlying earnings growth at Saudi Arabian Oil (TADAWUL:2222) is promising, but the shareholders are still in the red over that time

It's normal to be annoyed when stock you own has a declining share price. But sometimes a share price fall can have more to do with market conditions than the performance of the specific business. So while the Saudi Arabian Oil Company (TADAWUL:2222) share price is down 20% in the last year, the total return to shareholders (which includes dividends) was -17%. That's better than the market which declined 17% over the last year. Longer term investors have fared much better, since the share price is up 20% in three years.

Since Saudi Arabian Oil has shed ر.س407b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

See our latest analysis for Saudi Arabian Oil

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the unfortunate twelve months during which the Saudi Arabian Oil share price fell, it actually saw its earnings per share (EPS) improve by 51%. It could be that the share price was previously over-hyped.

It's fair to say that the share price does not seem to be reflecting the EPS growth. But we might find some different metrics explain the share price movements better.

Vibrant companies don't usually cut their dividends, so the recent reduction might help explain why the Saudi Arabian Oil share price has been weak.

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

Saudi Arabian Oil is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Saudi Arabian Oil in this interactive graph of future profit estimates.

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 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Saudi Arabian Oil's TSR for the last 1 year was -17%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

With a loss of 17% in the last year (even including dividends), Saudi Arabian Oil's returns haven't been too far from the market return of -17%. Over the last three years, shareholders booked a gain of 10% per year - better than the last year, that's for sure!. It could be worth doing some further research, because it may be that the long term future remains bright (and the lower share price an opportunity). I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - Saudi Arabian Oil has 2 warning signs (and 1 which is concerning) we think you should know about.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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