In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term Inspur Software Co., Ltd. (SHSE:600756) shareholders have had that experience, with the share price dropping 23% in three years, versus a market decline of about 11%. Shareholders have had an even rougher run lately, with the share price down 15% in the last 90 days. Of course, this share price action may well have been influenced by the 8.8% decline in the broader market, throughout the period.

If the past week is anything to go by, investor sentiment for Inspur Software isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

See our latest analysis for Inspur Software

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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Inspur Software became profitable within the last five years. We would usually expect to see the share price rise as a result. So it's worth looking at other metrics to try to understand the share price move.

With a rather small yield of just 0.2% we doubt that the stock's share price is based on its dividend. We note that, in three years, revenue has actually grown at a 20% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Inspur Software 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).

Take a more thorough look at Inspur Software's financial health with this free report on its balance sheet.

A Different Perspective

It's good to see that Inspur Software has rewarded shareholders with a total shareholder return of 4.9% in the last twelve months. That's including the dividend. That certainly beats the loss of about 3% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. 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 Inspur Software you should be aware of.

Of course Inspur Software 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.