If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But the long term shareholders of Magellan Aerospace Corporation (TSE:MAL) have had an unfortunate run in the last three years. Regrettably, they have had to cope with a 67% drop in the share price over that period. The more recent news is of little comfort, with the share price down 61% in a year. More recently, the share price has dropped a further 9.7% in a month.

Check out our latest analysis for Magellan Aerospace

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Magellan Aerospace saw its EPS decline at a compound rate of 14% per year, over the last three years. The share price decline of 31% is actually steeper than the EPS slippage. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. This increased caution is also evident in the rather low P/E ratio, which is sitting at 5.72.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

earnings-per-share-growth

Dive deeper into Magellan Aerospace's key metrics by checking this interactive graph of Magellan Aerospace's earnings, revenue and cash flow.

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Magellan Aerospace, it has a TSR of -64% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

While the broader market lost about 5.0% in the twelve months, Magellan Aerospace shareholders did even worse, losing 59% (even including dividends) . Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 10.0% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 3 warning signs for Magellan Aerospace (1 makes us a bit uncomfortable) that you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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Excerpt from:

What Type Of Returns Would Magellan Aerospace's(TSE:MAL) Shareholders Have Earned If They Purchased Their SharesThree Years Ago? - Yahoo Finance