The three-year shareholder returns and company earnings persist lower as CMC Markets (LON:CMCX) stock falls a further 13% in past week

If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But the long term shareholders of CMC Markets plc (LON:CMCX) have had an unfortunate run in the last three years. Sadly for them, the share price is down 66% in that time. And the ride hasn't got any smoother in recent times over the last year, with the price 51% lower in that time. The falls have accelerated recently, with the share price down 41% in the last three months.

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

See our latest analysis for CMC Markets

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. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the three years that the share price fell, CMC Markets' earnings per share (EPS) dropped by 21% each year. The share price decline of 30% 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 7.14.

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

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

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for CMC Markets the TSR over the last 3 years was -60%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

CMC Markets shareholders are down 49% for the year (even including dividends), but the market itself is up 4.4%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 4% over the last half decade. 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. 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. To that end, you should be aware of the 2 warning signs we've spotted with CMC Markets .

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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.