Investors three-year losses continue as Morgan Advanced Materials (LON:MGAM) dips a further 6.7% this week, earnings continue to decline

Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Morgan Advanced Materials plc (LON:MGAM) shareholders have had that experience, with the share price dropping 32% in three years, versus a market return of about 18%. The more recent news is of little comfort, with the share price down 29% in a year. The falls have accelerated recently, with the share price down 24% in the last three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

If the past week is anything to go by, investor sentiment for Morgan Advanced Materials isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

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There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the three years that the share price fell, Morgan Advanced Materials' earnings per share (EPS) dropped by 9.3% each year. The share price decline of 12% is actually steeper than the EPS slippage. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. This increased caution is also evident in the rather low P/E ratio, which is sitting at 11.37.

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

It might be well worthwhile taking a look at our free report on Morgan Advanced Materials' earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Morgan Advanced Materials the TSR over the last 3 years was -23%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Morgan Advanced Materials shareholders are down 25% for the year (even including dividends), but the market itself is up 11%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 5%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Morgan Advanced Materials better, we need to consider many other factors. For instance, we've identified 3 warning signs for Morgan Advanced Materials that you should be aware of.

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