Investing in Commercial Bank of Dubai PSC (DFM:CBD) three years ago would have given you a 42% gain

Low-cost index funds make it easy to achieve average market returns. But overall, many stocks are underperforming the market. For example, the Dubai Commercial Bank PSC (DFM:CBD) stock price return of 22% over three years is lower than the market return over the same period. Some buyers scoff, however, with a 21% increase last year.

Let’s take a look at the longer term underlying fundamentals and see if they have been consistent with shareholder returns.

However, if you prefer to see where opportunities and risks are within the CBD industryyou can check out our analysis on the AE banking industry.

It is undeniable that markets are sometimes efficient, but prices do not always reflect the underlying performance of companies. An imperfect but simple way to examine how a company’s market perception has changed is to compare the evolution of earnings per share (EPS) with the movement of the share price.

In three years of share price growth, Commercial Bank of Dubai PSC has achieved compound earnings per share growth of 5.0% per annum. This EPS growth is less than the average annual share price increase of 7%. This suggests that as the company has progressed over the past few years, it has earned the trust of market players. It is not uncommon to see the market “revalue” a stock after a few years of growth.

You can see below how the EPS has evolved over time (find out the exact values ​​by clicking on the image).

DFM: Growth in earnings per share CBD September 15, 2022

We know that the Commercial Bank of Dubai PSC has recently improved its results, but will it increase its income? If you are interested, you can check this free report showing consensus revenue forecast.

What about dividends?

It is important to consider the total shareholder return, as well as the stock price return, for a given stock. The TSR incorporates the value of any spin-offs or discounted capital increases, as well as any dividends, on the basis of the assumption that dividends are reinvested. So for companies that pay a generous dividend, the TSR is often much higher than the stock price return. It turns out that Commercial Bank of Dubai PSC’s TSR for the past 3 years was 42%, which exceeds the share price return mentioned earlier. This is largely the result of its dividend payments!

A different perspective

Commercial Bank of Dubai PSC provided a TSR of 27% over the last twelve months. But this yield is lower than the market. On the bright side, it’s still a gain, and it’s actually better than the 9% average return over half a decade. This could indicate that the company is gaining new investors, as it pursues its strategy. I find it very interesting to look at stock price over the long term as a proxy for company performance. But to really get insight, we also need to consider other information. Consider the risks, for example. Every business has them, and we’ve spotted 1 warning sign for Commercial Bank of Dubai PSC you should know.

Sure Commercial Bank of Dubai PSC may not be the best stock to buy. So you might want to see this free collection of growth values.

Please note that the market returns quoted in this article reflect the market-weighted average returns of the stocks currently trading on the AE exchanges.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

Valuation is complex, but we help make it simple.

Find out if Commercial Bank of Dubai PSC is potentially overvalued or undervalued by viewing our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.

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