This month, we saw the MicroAlgo Inc. (NASDAQ:MLGO) up an impressive 132%. But that doesn't change the fact that the returns over the last year have been stomach churning. During that time the share price has plummeted like a stone, down 71%. It's not uncommon to see a bounce after a drop like that. The bigger issue is whether the company can sustain the momentum in the long term.

While the last year has been tough for MicroAlgo shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

See our latest analysis for MicroAlgo

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Unhappily, MicroAlgo had to report a 99% decline in EPS over the last year. This fall in the EPS is significantly worse than the 71% the share price fall. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult. With a P/E ratio of 710.63, it's fair to say the market sees an EPS rebound on the cards.

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

This free interactive report on MicroAlgo's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

MicroAlgo shareholders are down 71% for the year, even worse than the market loss of 7.7%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. The share price decline has continued throughout the most recent three months, down 68%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for MicroAlgo (of which 2 are a bit concerning!) you should know about.

Of course MicroAlgo may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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