Magazine Luiza (BVMF:MGLU3) investors are sitting on a loss of 90% if they invested three years ago

As an investor, mistakes are inevitable. But you want to avoid the really big losses like the plague. So take a moment to sympathize with the long term shareholders of Magazine Luiza S.A. (BVMF:MGLU3), who have seen the share price tank a massive 90% over a three year period. That'd be enough to cause even the strongest minds some disquiet. And over the last year the share price fell 34%, so we doubt many shareholders are delighted. We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.

It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.

Check out our latest analysis for Magazine Luiza

Magazine Luiza isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

Over three years, Magazine Luiza grew revenue at 5.5% per year. That's not a very high growth rate considering it doesn't make profits. Nonetheless, it's fair to say the rapidly declining share price (down 24%, compound, over three years) suggests the market is very disappointed with this level of growth. We generally don't try to 'catch the falling knife'. Before considering a purchase, take a look at the losses the company is racking up.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

This free interactive report on Magazine Luiza's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Investors in Magazine Luiza had a tough year, with a total loss of 34% (including dividends), against a market gain of about 35%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 10% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Even so, be aware that Magazine Luiza is showing 2 warning signs in our investment analysis , you should know about...

But note: Magazine Luiza may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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