U.S. Markets open in 1 hr 43 mins
  • S&P Futures

    4,281.25
    -36.50 (-0.85%)
     
  • Dow Futures

    33,705.00
    -338.00 (-0.99%)
     
  • Nasdaq Futures

    13,912.50
    -74.25 (-0.53%)
     
  • Russell 2000 Futures

    1,898.70
    -29.60 (-1.54%)
     
  • Crude Oil

    87.29
    +0.68 (+0.79%)
     
  • Gold

    1,790.60
    -4.40 (-0.25%)
     
  • Silver

    22.60
    -0.08 (-0.34%)
     
  • EUR/USD

    1.1141
    -0.0006 (-0.0557%)
     
  • 10-Yr Bond

    1.8070
    0.0000 (0.00%)
     
  • Vix

    31.93
    -0.03 (-0.09%)
     
  • GBP/USD

    1.3380
    -0.0001 (-0.0107%)
     
  • USD/JPY

    115.5750
    +0.2730 (+0.2368%)
     
  • BTC-USD

    36,255.81
    -340.73 (-0.93%)
     
  • CMC Crypto 200

    821.92
    +2.41 (+0.29%)
     
  • FTSE 100

    7,443.81
    -110.50 (-1.46%)
     
  • Nikkei 225

    26,717.34
    +547.04 (+2.09%)
     

Airtel Africa's (LON:AAF) earnings growth rate lags the 71% return delivered to shareholders

  • Oops!
    Something went wrong.
    Please try again later.
·3 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • AAF.L

The simplest way to invest in stocks is to buy exchange traded funds. But you can significantly boost your returns by picking above-average stocks. To wit, the Airtel Africa Plc (LON:AAF) share price is 65% higher than it was a year ago, much better than the market return of around 21% (not including dividends) in the same period. So that should have shareholders smiling. We'll need to follow Airtel Africa for a while to get a better sense of its share price trend, since it hasn't been listed for particularly long.

In light of the stock dropping 4.1% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive one-year return.

Check out our latest analysis for Airtel Africa

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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the last year Airtel Africa grew its earnings per share (EPS) by 47%. The share price gain of 65% certainly outpaced the EPS growth. So it's fair to assume the market has a higher opinion of the business than it a year ago.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth
earnings-per-share-growth

We know that Airtel Africa has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Airtel Africa, it has a TSR of 71% for the last 1 year. 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

Airtel Africa shareholders should be happy with the total gain of 71% over the last twelve months, including dividends. A substantial portion of that gain has come in the last three months, with the stock up 18% in that time. Demand for the stock from multiple parties is pushing the price higher; it could be that word is getting out about its virtues as a business. 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 for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Airtel Africa , and understanding them should be part of your investment process.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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.