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. Investors in Shanghai Belling Co., Ltd. (SHSE:600171) have tasted that bitter downside in the last year, as the share price dropped 41%. That's well below the market decline of 22%. However, the longer term returns haven't been so bad, with the stock down 18% in the last three years. The falls have accelerated recently, with the share price down 28% in the last three months. Of course, this share price action may well have been influenced by the 13% decline in the broader market, throughout the period.
With the stock having lost 4.4% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the last year Shanghai Belling saw its earnings per share drop below zero. While this may prove temporary, we'd consider it a negative, so it doesn't surprise us that the stock price is down. Of course, if the company can turn the situation around, investors will likely profit.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
Dive deeper into Shanghai Belling's key metrics by checking this interactive graph of Shanghai Belling's earnings, revenue and cash flow.
A Different Perspective
While the broader market lost about 22% in the twelve months, Shanghai Belling shareholders did even worse, losing 41% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 3% 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. 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. To that end, you should be aware of the 1 warning sign we've spotted with Shanghai Belling .
But note: Shanghai Belling may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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.