Magna International’s earnings (TSE:MG) have been increasing, but shareholders remain skeptical about its future prospects. As an investor, it’s important to aim for a portfolio that outperforms the market average. However, it’s almost inevitable that some stocks you choose will underperform compared to the market average. Unfortunately, long-term shareholders of Magna International Inc. (TSE:MG) have experienced this, with the stock price declining 22% over three years, against a market gain of about 27%.
Recently, the stock fell 4.4% in a week, prompting a closer examination of the company’s performance for any potential warning signs. Despite the belief in efficient markets, it’s recognized that markets can be overly reactive and investors not always rational. By analyzing changes in earnings per share (EPS) and stock prices over time, we can understand shifts in investor attitudes towards a company.
In the same period that saw the stock price fall, Magna International’s EPS actually rose by 33% annually. This raises questions and indicates that the decline in share price might be a temporary anomaly or perhaps past growth expectations were too high.
There appears to be no direct correlation between the EPS improvement and the stock price decline, suggesting other factors at play. Revenue increased by 7.0% over the same period, indicating that the decline in share price isn’t related to revenue either. This warrants further investigation into Magna International, as our current analysis might be overlooking key details, or there could be a hidden opportunity.
The company is well-known among investors, and many analysts have attempted to forecast its future profits. Considering the significant number of analyst forecasts, it might be beneficial to review this free chart showing consensus estimates.
Additionally, it’s important to consider total shareholder return (TSR) alongside share price returns. TSR factors in cash dividends (reinvested) and the value of any discounted capital raisings and spin-offs, offering a more complete view of a stock’s return. For Magna International, the TSR over the last three years is -16%, which is better than the share price return alone. The dividends largely account for this difference.
From a different perspective, while the broader market rose about 6.8% last year, Magna International shareholders experienced a 6.5% loss (including dividends). Despite occasional drops in good stocks’ share prices, it’s crucial to see improvements in a company’s fundamental metrics before gaining interest. On a positive note, long-term shareholders have seen a 5% annual gain over five years. The recent downturn might be an opportunity, so it’s advisable to check the fundamental data for signs of a long-term growth trend. Looking at share price over an extended period can be insightful for evaluating business performance, but it’s also important to consider other factors, such as investment risks. We’ve identified 2 warning signs with Magna International that should be part of your investment consideration.
For those seeking potentially great investments beyond this, explore this free list of companies expected to see earnings growth.
Note: The market returns mentioned in this article represent the market-weighted average returns of stocks currently trading on Canadian exchanges.
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