Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, your risk returning less than the market. Unfortunately, that's been the case for longer term Bank of Gansu Co., Ltd. (HKG:2139) shareholders, since the share price is down 37% in the last three years, falling well short of the market decline of around 3.2%.

On a more encouraging note the company has added CN¥603m 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.

See our latest analysis for Bank of Gansu

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.

Bank of Gansu saw its EPS decline at a compound rate of 39% per year, over the last three years. This fall in the EPS is worse than the 14% compound annual share price fall. So, despite the prior disappointment, shareholders must have some confidence the situation will improve, longer term.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

Dive deeper into Bank of Gansu's key metrics by checking this interactive graph of Bank of Gansu's earnings, revenue and cash flow.

A Different Perspective

We can sympathize with Bank of Gansu about their 5.5% loss for the year, but the silver lining is that the broader market return was worse, at around -19%. Furthermore, the stock lost shareholders 11% per year over three years, so the one-year return was better in a relative sense. It could well be that the business has begun to stabilize, though the recent returns are hardly impressive. 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. To that end, you should be aware of the 1 warning sign we've spotted with Bank of Gansu .

Of course Bank of Gansu 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 HK 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.