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Did Changing Sentiment Drive Major Drilling Group International's (TSE:MDI) Share Price Down By 45%?

Simply Wall St

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Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Major Drilling Group International Inc. (TSE:MDI) shareholders, since the share price is down 45% in the last three years, falling well short of the market return of around 19%. And more recent buyers are having a tough time too, with a drop of 33% in the last year.

View our latest analysis for Major Drilling Group International

Major Drilling Group International isn't a profitable company, so it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually expect strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

In the last three years, Major Drilling Group International saw its revenue grow by 11% per year, compound. That's a fairly respectable growth rate. Shareholders have seen the share price fall at 18% per year, for three years. This implies the market had higher expectations of Major Drilling Group International. With revenue growing at a solid clip, now might be the time to focus on the possibility that it will have a brighter future.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

TSX:MDI Income Statement, July 10th 2019

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. If you are thinking of buying or selling Major Drilling Group International stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

While the broader market gained around 0.6% in the last year, Major Drilling Group International shareholders lost 33%. 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 11% 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.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.