The past three years for Saudi Basic Industries (TADAWUL:2010) investors has not been profitable

Many investors define successful investing as beating the market average over the long term. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. Unfortunately, that's been the case for longer term Saudi Basic Industries Corporation (TADAWUL:2010) shareholders, since the share price is down 52% in the last three years, falling well short of the market decline of around 15%. And over the last year the share price fell 27%, so we doubt many shareholders are delighted. Furthermore, it's down 13% in about a quarter. That's not much fun for holders. But this could be related to the weak market, which is down 9.9% in the same period.

So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.

Our free stock report includes 1 warning sign investors should be aware of before investing in Saudi Basic Industries. Read for free now.

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 three years that the share price fell, Saudi Basic Industries' earnings per share (EPS) dropped by 55% each year. This fall in the EPS is worse than the 22% compound annual share price fall. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines. This positive sentiment is also reflected in the generous P/E ratio of 84.02.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that Saudi Basic Industries has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Saudi Basic Industries will grow revenue in the future.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Saudi Basic Industries the TSR over the last 3 years was -45%, 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

We regret to report that Saudi Basic Industries shareholders are down 23% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 9.2%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 1.6% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Even so, be aware that Saudi Basic Industries is showing 1 warning sign 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 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.