Over the past three years, the performance of the abrdn (LSE: ABDN) share price has been incredibly disappointing. During this period, including dividends paid to investors, the stock has returned -0.6% a year.
By comparison, the FTSE All-Share Index has added 4.6% per annum, including dividends. To put it another way, the stock has underperformed the broader market by 5.2% per annum since October 2018.
Over the past 12 months, its performance has been marginally better, but not by much. In the past year, the stock has returned 5.2%, compared to a gain of 24% for the FTSE All-Share.
As a value investor, I’m always drawn to stocks that are underperforming the market, as this can be a sign they may be undervalued. With that being the case, I have been taking a closer look at the company, which was formerly known as Standard Life Aberdeen, to see if it could be worth adding the stock to my portfolio as a value investment.
abrdn share price outlook
Whenever I stumble across a company that’s underperformed the market, I always try to understand why investors have been giving the business the cold shoulder before I take a position.
abrdn has been struggling to attract investors for years. Even the company’s name change hasn’t ignited investor interest. It seems as if there are a couple of reasons why. The asset management group has been struggling to retain customers. Assets under management (AUM) have declined year after year. AUM declined a further 1% during the first half of 2021.
What’s more, the group’s desirable dividend yield, which currently stands at 5.8%, isn’t covered by profits. The company has been digging into its reserves to fund the payout.
Still, it has plenty of liquidity. Management has been selling off the company’s stakes in overseas divisions HDFC and Parmenion. The group has also been selling its life insurance liabilities, and this has freed up capital.
However, the fact remains that the firm is paying out more than it can afford to its investors, and customers are walking out the door.
This combination of factors seems to explain why the market has been pushing the abrdn share price lower. With more money flowing out than coming in, the business is technically shrinking. That means it will ultimately be worth less.
Turn around on the horizon?
Still, the group could be on the verge of a turnaround. Outflows are slowing, thanks in part to the fact that the majority of the investment funds managed by the group are outperforming their respective benchmarks. If this continues, outflows could reverse entirely. That would almost certainly have a positive impact on investor sentiment towards the abrdn share price.
Further, management is still identifying cost savings from the Standard Life and Aberdeen Asset Management merger. These synergies could help improve the group’s profit margins and dividend sustainability.
Considering these factors, I’m cautiously optimistic about the outlook for the abrdn share price. If it can reverse outflows and boost profitability, I think the stock can change course. However, until there’s some concrete progress, I won’t be buying the shares for my portfolio.
I’d rather wait on the sidelines until the firm starts to reverse course.
