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The past year for Magellan Financial Group (ASX:MFG) investors has not been profitable

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Investing in stocks comes with the risk that the share price will fall. And unfortunately for Magellan Financial Group Limited (ASX:MFG) shareholders, the stock is a lot lower today than it was a year ago. To wit the share price is down 58% in that time. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 25% in three years. Furthermore, it's down 39% in about a quarter. That's not much fun for holders.

Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.

See our latest analysis for Magellan Financial Group

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).

Unfortunately Magellan Financial Group reported an EPS drop of 34% for the last year. This reduction in EPS is not as bad as the 58% share price fall. This suggests the EPS fall has made some shareholders are more nervous about the business.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth
earnings-per-share-growth

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Magellan Financial Group's earnings, revenue and cash flow.

A Different Perspective

Magellan Financial Group shareholders are down 56% for the year (even including dividends), but the market itself is up 16%. 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. On the bright side, long term shareholders have made money, with a gain of 1.3% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Magellan Financial Group better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for Magellan Financial Group you should be aware of.

Magellan Financial Group is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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