Many investors define successful investing as beating the market average over the long term. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Fresnillo plc (LON:FRES) shareholders have had that experience, with the share price dropping 39% in three years, versus a market return of about 15%.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

View our latest analysis for Fresnillo

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Fresnillo saw its EPS decline at a compound rate of 26% per year, over the last three years. In comparison the 15% compound annual share price decline isn't as bad as the EPS drop-off. So the market may not be too worried about the EPS figure, at the moment -- or it may have previously priced some of the drop in.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. We note that for Fresnillo the TSR over the last 3 years was -35%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Investors in Fresnillo had a tough year, with a total loss of 10% (including dividends), against a market gain of about 12%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 4% per year over five years. 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. Before deciding if you like the current share price, check how Fresnillo scores on these 3 valuation metrics.