It's easy to match the overall market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in Gan & Lee Pharmaceuticals. (SHSE:603087) have tasted that bitter downside in the last year, as the share price dropped 12%. That's disappointing when you consider the market declined 0.08%. Because Gan & Lee Pharmaceuticals hasn't been listed for many years, the market is still learning about how the business performs.

With the stock having lost 3.1% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

See our latest analysis for Gan & Lee Pharmaceuticals

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 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.

During the last year Gan & Lee Pharmaceuticals saw its earnings per share drop below zero. Buyers no doubt think it's a temporary situation, but those with a nose for quality have low tolerance for losses. However, there may be an opportunity for investors if the company can recover.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

Dive deeper into Gan & Lee Pharmaceuticals' key metrics by checking this interactive graph of Gan & Lee Pharmaceuticals's earnings, revenue and cash flow.

A Different Perspective

Given that the market gained 0.08% in the last year, Gan & Lee Pharmaceuticals shareholders might be miffed that they lost 12% (even including dividends). While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. It's great to see a nice little 4.5% rebound in the last three months. This could just be a bounce because the selling was too aggressive, but fingers crossed it's the start of a new trend. 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. Take risks, for example - Gan & Lee Pharmaceuticals has 2 warning signs we think you should be aware of.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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