The five-year loss for CMC Markets (LON:CMCX) shareholders likely driven by its shrinking earnings

CMC Markets Plc (LON:CMCX) shareholders should be happy to see the share price up 29% in the last month. But if you look at the last five years the returns have not been good. After all, the share price is down 31% in that time, significantly under-performing the market.

While the stock has risen 26% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

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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.

Looking back five years, both CMC Markets' share price and EPS declined; the latter at a rate of 5.4% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 7% per year, over the period. This implies that the market was previously too optimistic about the stock. The low P/E ratio of 11.72 further reflects this reticence.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that CMC Markets has improved its bottom line lately, but is it going to grow revenue? Check if analysts think CMC Markets will grow revenue in the future.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for CMC Markets the TSR over the last 5 years was -15%, 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

CMC Markets shareholders are down 3.0% for the year (even including dividends), but the market itself is up 20%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 3% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that CMC Markets is showing 2 warning signs in our investment analysis , you should know about...

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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.