For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Magnum Berhad (KLSE:MAGNUM) shareholders, since the share price is down 48% in the last three years, falling well short of the market decline of around 11%. The more recent news is of little comfort, with the share price down 25% in a year.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
Check out our latest analysis for Magnum Berhad
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.
Magnum Berhad saw its EPS decline at a compound rate of 5.4% per year, over the last three years. The share price decline of 20% is actually steeper than the EPS slippage. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Magnum Berhad has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Magnum Berhad will grow revenue in the future.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Magnum Berhad's TSR for the last 3 years was -43%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market gained around 9.8% in the last year, Magnum Berhad shareholders lost 22% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 5% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Magnum Berhad better, we need to consider many other factors. Even so, be aware that Magnum Berhad is showing 1 warning sign in our investment analysis , you should know about...