Analyzing Magna International’s Stock Decline: A 3-Year Investment Perspective

Analyzing Magna International’s Stock Decline: A 3-Year Investment Perspective.

Analyzing Magna International’s Stock Decline: A 3-Year Investment Perspective. Over the past three years, shareholders of Magna International (TSE:MG) have experienced a 14% decrease in stock value. It’s important for investors to strive for portfolios that outperform the market average, but the inherent risk in stock picking often leads to selecting companies that underperform. This seems to be the case for long-term investors in Magna International Inc., as its shares have declined by 20% over three years, significantly underperforming the market’s approximately 27% return.

As the shareholders have faced losses over this extended period, it’s crucial to examine the company’s underlying fundamentals during this time and their alignment with the returns.

Analyzing Magna International’s Stock Decline: A 3-Year Investment Perspective

For more insights, see our latest analysis of Magna International.

Despite traditional teachings of the efficient markets hypothesis, it’s recognized that markets are dynamically over-reactive and investors aren’t always rational. One way, albeit imperfect, to gauge sentiment shifts about a company is to compare its earnings per share (EPS) with its share price.

Interestingly, while Magna International’s share price dropped over three years, its EPS actually grew by 33% annually. This presents a conundrum, suggesting either a temporary factor boosting the share price or previous overestimation of the company, leading to disappointing growth.

Further scrutiny is warranted as this EPS growth doesn’t align with the declining share price.

Remarkably, the company’s revenue has grown at a 7.0% annual rate over three years, which doesn’t seem to justify selling the shares. There might be more to uncover in Magna International’s case, and there could be an opportunity that we’re missing in this analysis.

Analyzing Magna International’s Stock Decline: A 3-Year Investment Perspective

Below is an image showing the trajectory of earnings and revenue over time (click on the image to make larger). Magna International, being a well-recognized stock with significant analyst coverage, suggests some predictability in its future growth. If you’re considering trading Magna International stock, you should look at this free report showing analyst consensus estimates for future profits.

Analyzing Magna Internationals Stock Decline A 3-Year Investment Perspective

Analyzing Magna Internationals Stock Decline A 3-Year Investment Perspective

Considering Dividends:
When evaluating investment returns, it’s critical to differentiate between total shareholder return (TSR) and share price return. Share price return only reflects the change in share price, while TSR includes dividends’ value (if reinvested) and any benefits from discounted capital raising or spin-offs. TSR provides a more comprehensive view of a stock’s return. For Magna International, the TSR over the last three years was -14%, which fares better than the share price return, largely due to its dividend payments.

Another Perspective:
This past year was challenging for Magna International investors, with a total loss of 6.1% (including dividends), compared to a market gain of around 5.4%. Good stocks can also see price drops, but fundamental business improvements are key before gaining interest. On a positive note, long-term shareholders have seen a 6% annual gain over five years. The recent market downturn might present an opportunity, so examining the fundamental data for signs of long-term growth trends is advisable. Understanding Magna International’s performance requires a comprehensive look at various factors. However, investors should note that Magna International currently shows 2 warning signs in our investment analysis.

For those who prefer to invest alongside management, you might appreciate this free list of companies with insider buying activity.

Please note, the market returns mentioned in this article represent the market-weighted average returns of stocks trading on Canadian exchanges.

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This article by Simply Wall St is general in nature, offering commentary based on historical data and analyst forecasts, using an unbiased methodology. It’s not intended as financial advice, nor as a recommendation to buy or sell any stock. It doesn’t consider individual objectives or financial situations. Our aim is to provide long-term focused analysis based on fundamental data. Our analysis may not include the latest company announcements or qualitative material. Simply Wall St holds no position in any stocks mentioned. The decline in Magna’s stock value, despite the company’s growth in sales and overall size, raises questions about its efficiency compared to the past.

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About the Author: Bernard Aybout

In the land of bytes and bits, a father of three sits, With a heart for tech and coding kits, in IT he never quits. At Magna's door, he took his stance, in Canada's wide expanse, At Karmax Heavy Stamping - Cosma's dance, he gave his career a chance. With a passion deep for teaching code, to the young minds he showed, The path where digital seeds are sowed, in critical thinking mode. But alas, not all was bright and fair, at Magna's lair, oh despair, Harassment, intimidation, a chilling air, made the workplace hard to bear. Management's maze and morale's dip, made our hero's spirit flip, In a demoralizing grip, his well-being began to slip. So he bid adieu to Magna's scene, from the division not so serene, Yet in tech, his interest keen, continues to inspire and convene.