Ideally, your overall portfolio should beat the market average. But every investor is virtually certain to have both over-performing and under-performing stocks. So we wouldn’t blame long term Morgan Advanced Materials plc (LON:MGAM) shareholders for doubting their decision to hold, with the stock down 15% over a half decade.

So let’s have a look and see if the longer term performance of the company has been in line with the underlying business’ progress.

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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).

While the share price declined over five years, Morgan Advanced Materials actually managed to increase EPS by an average of 29% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.

Generally speaking we’d hope to see stronger share price increases on the back of sustained EPS growth, but other metrics may hold a clue to why the share price performance is relatively modest.

The steady dividend doesn’t really explain why the share price is down. While it’s not completely obvious why the share price is down, a closer look at the company’s history might help explain it.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Morgan Advanced Materials the TSR over the last 5 years was 5.7%, which is better than the share price return mentioned above. And there’s no prize for guessing that the dividend payments largely explain the divergence!