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Buying shares in the best businesses can build meaningful wealth for you and your family. And we've seen some truly amazing gains over the years. For example, the Metals Exploration plc (LON:MTL) share price is up a whopping 577% in the last half decade, a handsome return for long term holders. This just goes to show the value creation that some businesses can achieve. The last week saw the share price soften some 3.3%. Anyone who held for that rewarding ride would probably be keen to talk about it.
Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
Check out our latest analysis for Metals Exploration
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).
During the five years of share price growth, Metals Exploration moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. Indeed, the Metals Exploration share price has gained 232% in three years. Meanwhile, EPS is up 131% per year. This EPS growth is higher than the 49% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. This unenthusiastic sentiment is reflected in the stock's reasonably modest P/E ratio of 1.01.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Metals Exploration has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
We're pleased to report that Metals Exploration shareholders have received a total shareholder return of 148% over one year. That gain is better than the annual TSR over five years, which is 47%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Metals Exploration (of which 2 are concerning!) you should know about.