Asia-potash International Investment (Guangzhou)Co.,Ltd. (SZSE:000893) shareholders might be concerned after seeing the share price drop 24% in the last quarter. But that doesn't change the fact that the returns over the last five years have been very strong. In fact, the share price is 227% higher today. Generally speaking the long term returns will give you a better idea of business quality than short periods can. Ultimately business performance will determine whether the stock price continues the positive long term trend.

In light of the stock dropping 9.9% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.

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 half decade, Asia-potash International Investment (Guangzhou)Co.Ltd became profitable. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Asia-potash International Investment (Guangzhou)Co.Ltd share price is up 74% in the last three years. During the same period, EPS grew by 238% each year. This EPS growth is higher than the 20% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 11.21.

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

It is of course excellent to see how Asia-potash International Investment (Guangzhou)Co.Ltd has grown profits over the years, but the future is more important for shareholders. This free interactive report on Asia-potash International Investment (Guangzhou)Co.Ltd's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

We regret to report that Asia-potash International Investment (Guangzhou)Co.Ltd shareholders are down 29% for the year. Unfortunately, that's worse than the broader market decline of 13%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. On the bright side, long term shareholders have made money, with a gain of 27% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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 instance, we've identified 1 warning sign for Asia-potash International Investment (Guangzhou)Co.Ltd that you should be aware of.

But note: Asia-potash International Investment (Guangzhou)Co.Ltd may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.