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For many, the main point of investing in the stock market is to achieve spectacular returns. And highest quality companies can see their share prices grow by huge amounts. Don't believe it? Then look at the Metals X Limited (ASX:MLX) share price. It's 727% higher than it was five years ago. If that doesn't get you thinking about long term investing, we don't know what will. On top of that, the share price is up 61% in about a quarter. We love happy stories like this one. The company should be really proud of that performance!
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
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. 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 X moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. 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. We can see that the Metals X share price is down 3.7% in the last three years. In the same period, EPS is up 22% per year. So there seems to be a mismatch between the positive EPS growth and the change in the share price, which is down -1.3% per year.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Metals X has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
A Different Perspective
We're pleased to report that Metals X shareholders have received a total shareholder return of 65% over one year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 53% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Metals X better, we need to consider many other factors. For instance, we've identified 1 warning sign for Metals X that you should be aware of.