Earnings growth outpaced the respectable 13% CAGR delivered to Agnico Eagle Mines (NYSE:AEM) shareholders over the last three years

Buying a low-cost index fund will get you the average market return. But if you invest in individual stocks, some are likely to underperform. That's what has happened with the Agnico Eagle Mines Limited (NYSE:AEM) share price. It's up 39% over three years, but that is below the market return. Zooming in, the stock is actually down 24% in the last year.

Since the stock has added US$426m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Check out our latest analysis for Agnico Eagle Mines

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.

During three years of share price growth, Agnico Eagle Mines achieved compound earnings per share growth of 80% per year. The average annual share price increase of 12% is actually lower than the EPS growth. So it seems investors have become more cautious about the company, over time.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of Agnico Eagle Mines' earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. As it happens, Agnico Eagle Mines' TSR for the last 3 years was 46%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Agnico Eagle Mines shareholders are down 22% for the year (even including dividends), but the market itself is up 9.2%. 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 Agnico Eagle Mines better, we need to consider many other factors. Take risks, for example - Agnico Eagle Mines has 1 warning sign we think you should be aware of.

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 US 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.