The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Unfortunately the Red Avenue New Materials Group Co., Ltd. (SHSE:603650) share price slid 20% over twelve months. That's disappointing when you consider the market declined 16%. Longer term investors have fared much better, since the share price is up 14% in three years. It's down 31% in about a quarter. However, one could argue that the price has been influenced by the general market, which is down 14% in the same timeframe.

Since Red Avenue New Materials Group has shed CN¥657m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Red Avenue New Materials Group

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.

Unfortunately Red Avenue New Materials Group reported an EPS drop of 50% for the last year. The share price fall of 20% isn't as bad as the reduction in earnings per share. So the market may not be too worried about the EPS figure, at the moment -- or it may have expected earnings to drop faster. With a P/E ratio of 64.12, it's fair to say the market sees an EPS rebound on the cards.

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

It might be well worthwhile taking a look at our free report on Red Avenue New Materials Group's earnings, revenue and cash flow.

A Different Perspective

Red Avenue New Materials Group shareholders are down 20% for the year (even including dividends), falling short of the market return. Meanwhile, the broader market slid about 16%, likely weighing on the stock. Investors are up over three years, booking 6% per year, much better than the more recent returns. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. 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. Take risks, for example - Red Avenue New Materials Group has 4 warning signs (and 1 which is a bit unpleasant) we think you should know about.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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