Master Drilling Group (JSE:MDI) Share Prices Have Dropped 48% In The Last Three Years

As an investor its worth striving to ensure your overall portfolio beats the market average. But if you try your hand at stock picking, your risk returning less than the market. Unfortunately, that's been the case for longer term Master Drilling Group Limited (JSE:MDI) shareholders, since the share price is down 48% in the last three years, falling well short of the market decline of around 3.9%. The more recent news is of little comfort, with the share price down 25% in a year. Unhappily, the share price slid 4.8% in the last week.

View our latest analysis for Master Drilling Group

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 three years that the share price fell, Master Drilling Group's earnings per share (EPS) dropped by 19% each year. This change in EPS is reasonably close to the 20% average annual decrease in the share price. That suggests that the market sentiment around the company hasn't changed much over that time, despite the disappointment. In this case, it seems that the EPS is guiding the share price.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Dive deeper into Master Drilling Group's key metrics by checking this interactive graph of Master Drilling Group's earnings, revenue and cash flow.

What about the Total Shareholder Return (TSR)?

We've already covered Master Drilling Group's share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Master Drilling Group's TSR of was a loss of 46% for the 3 years. That wasn't as bad as its share price return, because it has paid dividends.

A Different Perspective

Master Drilling Group shareholders are down 25% for the year, but the market itself is up 3.6%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 6% 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. Even so, be aware that Master Drilling Group is showing 2 warning signs in our investment analysis , and 1 of those is a bit concerning...

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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 ZA exchanges.

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This article by Simply Wall St is general in nature. 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.
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