As an investor its worth striving to ensure your overall portfolio beats the market average. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term Zhejiang Wolwo Bio-Pharmaceutical Co., Ltd. (SZSE:300357) shareholders have had that experience, with the share price dropping 51% in three years, versus a market decline of about 10%. And the ride hasn't got any smoother in recent times over the last year, with the price 39% lower in that time. The falls have accelerated recently, with the share price down 17% in the last three months.
With the stock having lost 3.2% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.
View our latest analysis for Zhejiang Wolwo Bio-Pharmaceutical
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.
During the unfortunate three years of share price decline, Zhejiang Wolwo Bio-Pharmaceutical actually saw its earnings per share (EPS) improve by 4.8% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.
It looks to us like the market was probably too optimistic around growth three years ago. But it's possible a look at other metrics will be enlightening.
With a rather small yield of just 0.7% we doubt that the stock's share price is based on its dividend. Revenue is actually up 14% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Zhejiang Wolwo Bio-Pharmaceutical further; while we may be missing something on this analysis, there might also be an opportunity.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free report showing analyst forecasts should help you form a view on Zhejiang Wolwo Bio-Pharmaceutical
A Different Perspective
Investors in Zhejiang Wolwo Bio-Pharmaceutical had a tough year, with a total loss of 39% (including dividends), against a market gain of about 2.2%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 7% 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. 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. Even so, be aware that Zhejiang Wolwo Bio-Pharmaceutical is showing 2 warning signs in our investment analysis , and 1 of those is concerning...
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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.