Canada Markets open in 8 hrs 15 mins

Did Changing Sentiment Drive First Quantum Minerals's (TSE:FM) Share Price Down A Worrying 52%?

Simply Wall St

Generally speaking long term investing is the way to go. But along the way some stocks are going to perform badly. To wit, the First Quantum Minerals Ltd. (TSE:FM) share price managed to fall 52% over five long years. We certainly feel for shareholders who bought near the top. And it's not just long term holders hurting, because the stock is down 32% in the last year. Furthermore, it's down 12% in about a quarter. That's not much fun for holders.

See our latest analysis for First Quantum Minerals

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.

First Quantum Minerals became profitable within the last five years. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.

The modest 0.08% dividend yield is unlikely to be guiding the market view of the stock. Revenue is actually up 2.6% over the time period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

TSX:FM Income Statement, July 25th 2019

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. So it makes a lot of sense to check out what analysts think First Quantum Minerals will earn in the future (free profit forecasts).

A Different Perspective

Investors in First Quantum Minerals had a tough year, with a total loss of 32% (including dividends), against a market gain of about 1.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 14% over the last half decade. We realise that Buffett 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 businesses. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.

First Quantum Minerals is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.