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Generally speaking long term investing is the way to go. But unfortunately, some companies simply don't succeed. For example the Mount Gibson Iron Limited (ASX:MGX) share price dropped 55% over five years. We certainly feel for shareholders who bought near the top. And we doubt long term believers are the only worried holders, since the stock price has declined 27% over the last twelve months. Furthermore, it's down 27% in about a quarter. That's not much fun for holders.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
See our latest analysis for Mount Gibson Iron
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
Looking back five years, both Mount Gibson Iron's share price and EPS declined; the latter at a rate of 46% per year. This fall in the EPS is worse than the 15% compound annual share price fall. So the market may previously have expected a drop, or else it expects the situation will improve. With a P/E ratio of 61.53, it's fair to say the market sees a brighter future for the business.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Mount Gibson Iron has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
What About The Total Shareholder Return (TSR)?
We've already covered Mount Gibson Iron's share price action, but we should also mention its total shareholder return (TSR). 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. Dividends have been really beneficial for Mount Gibson Iron shareholders, and that cash payout explains why its total shareholder loss of 52%, over the last 5 years, isn't as bad as the share price return.
A Different Perspective
Investors in Mount Gibson Iron had a tough year, with a total loss of 27%, against a market gain of about 23%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 9% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. Is Mount Gibson Iron cheap compared to other companies? These 3 valuation measures might help you decide.