It's easy to match the overall market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. For example, the China National Electric Apparatus Research Institute Co., Ltd. (SHSE:688128) share price is down 43% in the last year. That's well below the market decline of 17%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 7.4% in three years. The last week also saw the share price slip down another 5.4%.

If the past week is anything to go by, investor sentiment for China National Electric Apparatus Research Institute isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

View our latest analysis for China National Electric Apparatus Research Institute

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 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.

Even though the China National Electric Apparatus Research Institute share price is down over the year, its EPS actually improved. It could be that the share price was previously over-hyped.

It seems quite likely that the market was expecting higher growth from the stock. But looking to other metrics might better explain the share price change.

Given the yield is quite low, at 1.9%, we doubt the dividend can shed much light on the share price. China National Electric Apparatus Research Institute's revenue is actually up 8.0% over the last year. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

Take a more thorough look at China National Electric Apparatus Research Institute's financial health with this free report on its balance sheet.

A Different Perspective

The last twelve months weren't great for China National Electric Apparatus Research Institute shares, which performed worse than the market, costing holders 42%, including dividends. The market shed around 17%, no doubt weighing on the stock price. Shareholders have lost 1.0% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. 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 2 warning signs for China National Electric Apparatus Research Institute you should be aware of.

Of course China National Electric Apparatus Research Institute 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 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.