Magma Fincorp's (NSE:MAGMA) Shareholders Are Down 74% On Their Shares

Magma Fincorp Limited (NSE:MAGMA) shareholders should be happy to see the share price up 21% in the last quarter. But the last three years have seen a terrible decline. To wit, the share price sky-dived 74% in that time. Arguably, the recent bounce is to be expected after such a bad drop. Of course the real question is whether the business can sustain a turnaround.

View our latest analysis for Magma Fincorp

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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).

Although the share price is down over three years, Magma Fincorp actually managed to grow EPS by 48% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.

Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

With revenue flat over three years, it seems unlikely that the share price is reflecting the top line. There doesn't seem to be any clear correlation between the fundamental business metrics and the share price. That could mean that the stock was previously overrated, or it could spell opportunity now.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We know that Magma Fincorp has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Magma Fincorp's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Magma Fincorp shareholders are up 5.5% for the year. But that was short of the market average. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 9% endured over half a decade. It could well be that the business is stabilizing. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Magma Fincorp (at least 1 which is potentially serious) , and understanding them should be part of your investment process.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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

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