Passive investing in index funds can generate returns that roughly match the overall market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Hunan Mendale Hometextile Co.,Ltd (SZSE:002397) share price is up 29% in the last 1 year, clearly besting the market decline of around 17% (not including dividends). That's a solid performance by our standards! Having said that, the longer term returns aren't so impressive, with stock gaining just 5.6% in three years.

Since the long term performance has been good but there's been a recent pullback of 8.4%, let's check if the fundamentals match the share price.

View our latest analysis for Hunan Mendale HometextileLtd

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. 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).

During the last year Hunan Mendale HometextileLtd saw its earnings per share (EPS) drop below zero. While this may prove temporary, we'd consider it a negative, so we would not have expected to see the share price up. It may be that the company has done well on other metrics.

Revenue was pretty stable on last year, so deeper research might be needed to explain the share price rise.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

Take a more thorough look at Hunan Mendale HometextileLtd's financial health with this free report on its balance sheet.

A Different Perspective

It's good to see that Hunan Mendale HometextileLtd has rewarded shareholders with a total shareholder return of 29% in the last twelve months. Notably the five-year annualised TSR loss of 3% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. It's always interesting to track share price performance over the longer term. But to understand Hunan Mendale HometextileLtd better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Hunan Mendale HometextileLtd you should be aware of, and 1 of them can't be ignored.

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 CN exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.