Metals X (ASX:MLX) shareholders are still up 334% over 3 years despite pulling back 10% in the past week

It might be of some concern to shareholders to see the Metals X Limited (ASX:MLX) share price down 23% in the last month. But over three years the performance has been really wonderful. The longer term view reveals that the share price is up 334% in that period. As long term investors the recent fall doesn't detract all that much from the longer term story. The only way to form a view of whether the current price is justified is to consider the merits of the business itself.

In light of the stock dropping 10% 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 three-year return.

Check out our latest analysis for Metals X

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Metals X became profitable within the last three years. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

It is of course excellent to see how Metals X has grown profits over the years, but the future is more important for shareholders. This free interactive report on Metals X's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Investors in Metals X had a tough year, with a total loss of 55%, against a market gain of about 1.8%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 11% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality 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. Take risks, for example - Metals X has 1 warning sign we think you should be aware of.

Of course Metals X may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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

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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.