Every investor on earth makes bad calls sometimes. But you want to avoid the really big losses like the plague. So spare a thought for the long term shareholders of Shanghai Milkground Food Tech Co., Ltd (SHSE:600882); the share price is down a whopping 77% in the last three years. That would be a disturbing experience. And more recent buyers are having a tough time too, with a drop of 54% in the last year. The falls have accelerated recently, with the share price down 11% in the last three months.

With the stock having lost 6.0% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

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 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.

Shanghai Milkground Food Tech saw its EPS decline at a compound rate of 30% per year, over the last three years. The share price decline of 38% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past. Having said that, the market is still optimistic, given the P/E ratio of 260.50.

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

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

A Different Perspective

We regret to report that Shanghai Milkground Food Tech shareholders are down 54% for the year. Unfortunately, that's worse than the broader market decline of 14%. 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. Longer term investors wouldn't be so upset, since they would have made 6%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Case in point: We've spotted 1 warning sign for Shanghai Milkground Food Tech you should be aware of.

Of course Shanghai Milkground Food Tech 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 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.