Hainan Poly Pharm. Co., Ltd (SZSE:300630) shareholders should be happy to see the share price up 14% in the last month. But that is small recompense for the exasperating returns over three years. Tragically, the share price declined 53% in that time. Some might say the recent bounce is to be expected after such a bad drop. After all, could be that the fall was overdone.

While the stock has risen 8.0% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

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.

Hainan Poly Pharm saw its EPS decline at a compound rate of 1.8% per year, over the last three years. The share price decline of 22% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

Dive deeper into Hainan Poly Pharm's key metrics by checking this interactive graph of Hainan Poly Pharm's earnings, revenue and cash flow.

A Different Perspective

While the broader market lost about 11% in the twelve months, Hainan Poly Pharm shareholders did even worse, losing 23% (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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 6% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Hainan Poly Pharm better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Hainan Poly Pharm (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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.