It's easy to match the overall market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in Red Avenue New Materials Group Co., Ltd. (SHSE:603650) have tasted that bitter downside in the last year, as the share price dropped 35%. That falls noticeably short of the market decline of around 26%. Zooming out, the stock is down 30% in the last three years. It's down 38% in about a quarter. But this could be related to the weak market, which is down 17% in the same period.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

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.

Even though the Red Avenue New Materials Group share price is down over the year, its EPS actually improved. It could be that the share price was previously over-hyped.

The divergence between the EPS and the share price is quite notable, during the year. But we might find some different metrics explain the share price movements better.

Given the yield is quite low, at 0.4%, we doubt the dividend can shed much light on the share price. Red Avenue New Materials Group managed to grow revenue over the last year, which is usually a real positive. 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 company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We know that Red Avenue New Materials Group has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Red Avenue New Materials Group stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

While the broader market lost about 26% in the twelve months, Red Avenue New Materials Group shareholders did even worse, losing 35% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. On the bright side, long term shareholders have made money, with a gain of 5% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Red Avenue New Materials Group better, we need to consider many other factors. For instance, we've identified 1 warning sign for Red Avenue New Materials Group that you should be aware of.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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.