Despite lower earnings than five years ago, Sahara International Petrochemical (TADAWUL:2310) investors are up 74% since then

Simply Wall St · 06/03 11:33

Sahara International Petrochemical Company (TADAWUL:2310) shareholders have seen the share price descend 13% over the month. But the silver lining is the stock is up over five years. Unfortunately its return of 35% is below the market return of 37%. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 20% drop, in the last year.

Since the long term performance has been good but there's been a recent pullback of 4.2%, let's check if the fundamentals match the share price.

View our latest analysis for Sahara International Petrochemical

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During five years of share price growth, Sahara International Petrochemical actually saw its EPS drop 3.9% per year.

So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We note that the dividend is higher than it was previously - always nice to see. It could be that the company is reaching maturity and dividend investors are buying for the yield. The revenue growth of about 13% per year might also encourage buyers.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth
SASE:2310 Earnings and Revenue Growth June 3rd 2024

If you are thinking of buying or selling Sahara International Petrochemical stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Sahara International Petrochemical, it has a TSR of 74% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

While the broader market lost about 2.1% in the twelve months, Sahara International Petrochemical shareholders did even worse, losing 15% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Longer term investors wouldn't be so upset, since they would have made 12%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. To that end, you should learn about the 2 warning signs we've spotted with Sahara International Petrochemical (including 1 which is a bit unpleasant) .

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 Saudi exchanges.