Abu Dhabi Airways (ADX: ADAVIATION) stock outperforms underlying earnings growth over the past five years

Generally, the goal of active stock picking is to find companies with returns that are above the market average. Buying undervalued businesses is one way to earn excess returns. That said, Abu Dhabi Air’s share price has climbed 91% in five years, easily beating the market’s return of 26% (excluding dividends). However, recent returns have been less impressive, with stocks returning just 30% last year, including dividends.

Behind the solid seven-day performance, let’s take a look at the role the company’s fundamentals play in driving long-term shareholder returns.

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in his thesis super investor in graham and dodsville Warren Buffett describes how stock prices do not always rationally reflect the value of a business. A flawed but reasonable way to assess how sentiment around a company is changing is to compare earnings per share (EPS) to the stock price.

For more than five years, Abu Dhabi Airways’ earnings per share have grown at an annual rate of 4.6%. This EPS growth is lower than the average annual share price growth of 14%. This shows that market participants place more importance on companies these days. That’s not shocking, given the growing track record.

The image below shows how the EPS is tracked over time (you can see more details if you click on the image).

We know Abu Dhabi Airways has boosted profits recently, but will it increase revenue?If you are interested, you can take a look at this free Report showing consensus revenue forecast.

What about dividends?

It’s important to consider the total shareholder return for any given stock as well as the share price return. TSR is a return calculation that takes into account the value of cash dividends (assuming any dividends received are reinvested) and the calculated value of any discounted financings and spin-offs. To be fair, TSR provides a more complete picture of dividend-paying stocks. As it happens, Abu Dhabi Air’s TSR of 148% over the past 5 years exceeds the previously mentioned share price return. And guessing the dividend payout largely explains this divergence is that there is no prize!

Different perspectives

Abu Dhabi Airways has delivered a total shareholder return of 30% over the past 12 months. Unfortunately, this fell short of market returns. The silver lining is that the gains are actually better than the average annual return of 20% per year over five years. Returns may improve with business fundamentals.Check out Abu Dhabi Airways’ scores on these fronts before deciding if you like the current share price 3 Valuation metrics.

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Please note that the market returns quoted in this article reflect the market weighted average returns of stocks currently traded on the AE exchange.

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This article by Simply Wall St is general in nature. We provide commentary based solely on historical data and analyst forecasts using an unbiased methodology and our articles are not intended to provide financial advice. It does not constitute advice to buy or sell any stock and does not take into account your objectives or your financial situation. Our goal is to bring you long-term focused analytics driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Wall Street has no positions in any of the stocks mentioned.