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One simple way to benefit from the stock market is to buy an index fund. But if you choose individual stocks with prowess, you can make superior returns. For example, the Emirates Integrated Telecommunications Company PJSC (DFM:DU) share price is up 34% in the last three years, clearly besting the market return of around 21% (not including dividends). On the other hand, the returns haven’t been quite so good recently, with shareholders up just 32% , including dividends .
So let’s assess the underlying fundamentals over the last 3 years and see if they’ve moved in lock-step with shareholder returns.
See our latest analysis for Emirates Integrated Telecommunications Company PJSC
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.
Over the last three years, Emirates Integrated Telecommunications Company PJSC failed to grow earnings per share, which fell 9.8% (annualized).
Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Given this situation, it makes sense to look at other metrics too.
The dividend is no better now than it was three years ago, so that is unlikely to have driven the share price higher. It could be that the revenue decline of 7.5% per year is viewed as evidence that Emirates Integrated Telecommunications Company PJSC is shrinking. If revenue keeps shrinking, it may be difficult to find earnings growth in the future.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Emirates Integrated Telecommunications Company PJSC, it has a TSR of 55% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
Emirates Integrated Telecommunications Company PJSC provided a TSR of 32% over the last twelve months. Unfortunately this falls short of the market return. The silver lining is that the gain was actually better than the average annual return of 7% per year over five year. It is possible that returns will improve along with the business fundamentals. 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. For example, we’ve discovered 2 warning signs for Emirates Integrated Telecommunications Company PJSC that you should be aware of before investing here.
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AE 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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