Positive earnings growth hasn't been enough to get MAPFRE Middlesea (MTSE:MMS) shareholders a favorable return over the last three years

It's nice to see the MAPFRE Middlesea p.l.c. (MTSE:MMS) share price up 12% in a week. But that doesn't change the fact that the returns over the last three years have been less than pleasing. After all, the share price is down 39% in the last three years, significantly under-performing the market.

While the last three years has been tough for MAPFRE Middlesea shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

View our latest analysis for MAPFRE Middlesea

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 unfortunate three years of share price decline, MAPFRE Middlesea actually saw its earnings per share (EPS) improve by 7.4% per year. 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.

Given the healthiness of the dividend payments, we doubt that they've concerned the market. On the other hand, the uninspired reduction in revenue, at 68% each year, may have shareholders ditching the stock. In that case, the current EPS might be viewed by some as difficult to sustain.

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

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

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 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, MAPFRE Middlesea's TSR for the last 3 years was -32%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

MAPFRE Middlesea shareholders are down 3.7% for the year (even including dividends), but the market itself is up 6.3%. 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 4% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. It's always interesting to track share price performance over the longer term. But to understand MAPFRE Middlesea better, we need to consider many other factors. Even so, be aware that MAPFRE Middlesea is showing 2 warning signs in our investment analysis , and 1 of those is potentially serious...

We will like MAPFRE Middlesea better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.