Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by Chongqing Iron & Steel Company Limited (HKG:1053) shareholders over the last year, as the share price declined 48%. That contrasts poorly with the market decline of 16%. However, the longer term returns haven't been so bad, with the stock down 2.1% in the last three years. Furthermore, it's down 21% in about a quarter. That's not much fun for holders.

If the past week is anything to go by, investor sentiment for Chongqing Iron & Steel isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

See our latest analysis for Chongqing Iron & Steel

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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).

Unhappily, Chongqing Iron & Steel had to report a 1.8% decline in EPS over the last year. The share price decline of 48% is actually more than the EPS drop. So it seems the market was too confident about the business, a year ago. The less favorable sentiment is reflected in its current P/E ratio of 4.45.

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. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

A Different Perspective

We regret to report that Chongqing Iron & Steel shareholders are down 48% for the year. Unfortunately, that's worse than the broader market decline of 16%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 7% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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

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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.