Investing in stocks inevitably means buying into some companies that perform poorly. But the long term shareholders of Betta Pharmaceuticals Co., Ltd. (SZSE:300558) have had an unfortunate run in the last three years. Regrettably, they have had to cope with a 63% drop in the share price over that period. And over the last year the share price fell 25%, so we doubt many shareholders are delighted. Furthermore, it's down 24% in about a quarter. That's not much fun for holders.

On a more encouraging note the company has added CN¥540m to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.

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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the three years that the share price fell, Betta Pharmaceuticals' earnings per share (EPS) dropped by 15% each year. This reduction in EPS is slower than the 28% annual reduction in the share price. So it seems the market was too confident about the business, in the past. Of course, with a P/E ratio of 52.57, the market remains optimistic.

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

We know that Betta Pharmaceuticals has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

A Different Perspective

We regret to report that Betta Pharmaceuticals shareholders are down 25% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 17%. 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 0.9% 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 1 warning sign for Betta Pharmaceuticals that you should be aware of before investing here.

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.

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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.