Investors in First Abu Dhabi Bank PJSC (ADX:FAB) would have lost 43% had they invested a year ago

Investing passively in index funds is a great way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that far outperform the market — but in the process, they run the risk of underperforming.Investors First Abu Dhabi Bank PJSC (ADX: Fab) suffered a bitter taste last year, with shares down 45%. This is in stark contrast to the market return of 17%.Stocks, on the other hand, are actually up 9.0% for three years. Plus, it’s down 22% in about a quarter. That’s no fun for holders.

With that in mind, it’s worth looking at whether the company’s fundamentals have been the driver of long-term performance, or if there are some differences.

See our latest analysis for First Abu Dhabi Bank PJSC

While some continue to teach the efficient market hypothesis, it turns out that markets are dynamic systems that overreact and investors are not always rational. An imperfect but simple way to think about how the market’s perception of a company shifts is to compare changes in earnings per share (EPS) to changes in the stock price.

While First Abu Dhabi Bank PJSC’s share price fell for the year, its earnings per share actually improved. It may be that the stock price was over-hyped before.

The difference between EPS and share price for the year is quite significant. Therefore, it is worth checking some other indicators as well.

First Abu Dhabi Bank PJSC’s revenue actually grew by 8.3% compared to last year. Since we cannot easily interpret stock price movements based on these indicators, it may be worth considering how market sentiment has changed for stocks.

The graph below shows income and earnings over time (you can see more details if you click on the image).

First Abu Dhabi Bank PJSC is a well-known stock with a high volume of analyst coverage, indicating some predictability for future growth.So we recommend checking this free A report showing consensus forecasts

What about dividends?

When looking at return on investment, it is important to consider the difference between total shareholder return (TSR) and stock price return. TSR is a rate of 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. Arguably, the TSR more fully describes the return a stock generates. We note that First Abu Dhabi Bank PJSC has a TSR of -43% over the past 1 year, which is better than the aforementioned share price return. It doesn’t make any sense to speculate that dividend payments largely explain the divergence!

Different perspectives

Investors in First Abu Dhabi Bank PJSC had a rough year, with a total loss of 43% (including dividends), against a market gain of around 17%. Even good stocks can drop in price at times, but we want to see an improvement in the fundamental metrics of a business before becoming too interested. Long-term investors won’t be so upset because they’ll be earning 6% a year for five years. The recent sell-off could be an opportunity, so it might be worth checking fundamental data for signs of a longer-term growth trend. I find it very interesting to look at long-term stock prices as a proxy for business performance. But to really gain insight, we need to consider other information as well.To do this, you should know 1 warning sign We discovered First Abu Dhabi Bank PJSC .

We would prefer First Abu Dhabi Bank PJSC if we see some big insider deals.While we wait, check this out free List of growth companies with significant insider buying recently.

Note that market returns quoted in this article reflect the market-weighted average return of stocks currently traded on the Emirian Exchange.

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This article by Simply Wall St is general in nature. We use only an unbiased methodology to provide reviews based on historical data and analyst forecasts, 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 into account your objectives or your financial situation. Our goal is to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any of the stocks mentioned.