Did The Underlying Business Drive AB Dynamics's (LON:ABDP) Lovely 955% Share Price Gain?
It hasn't been the best quarter for AB Dynamics plc (LON:ABDP) shareholders, since the share price has fallen 27% in that time. But that does not change the realty that the stock's performance has been terrific, over five years. Indeed, the share price is up a whopping 955% in that time. So it might be that some shareholders are taking profits after good performance. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain.
We love happy stories like this one. The company should be really proud of that performance!
View our latest analysis for AB Dynamics
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, AB Dynamics achieved compound earnings per share (EPS) growth of 27% per year. This EPS growth is lower than the 60% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that AB Dynamics has improved its bottom line lately, but is it going to grow revenue? Check if analysts think AB Dynamics will grow revenue in the future.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. In the case of AB Dynamics, it has a TSR of 984% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's good to see that AB Dynamics has rewarded shareholders with a total shareholder return of 24% in the last twelve months. That's including the dividend. Having said that, the five-year TSR of 61% a year, is even better. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for AB Dynamics you should know about.
But note: AB Dynamics may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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