Investors can approximate the average 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. That downside risk was realized by Qingdao Sentury Tire Co., Ltd. (SZSE:002984) shareholders over the last year, as the share price declined 21%. That contrasts poorly with the market decline of 5.9%. Because Qingdao Sentury Tire hasn't been listed for many years, the market is still learning about how the business performs. More recently, the share price has dropped a further 8.7% in a month.

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

See our latest analysis for Qingdao Sentury Tire

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Unfortunately Qingdao Sentury Tire reported an EPS drop of 29% for the last year. This fall in the EPS is significantly worse than the 21% the share price fall. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult.

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

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

A Different Perspective

Qingdao Sentury Tire shareholders are down 21% for the year (even including dividends), even worse than the market loss of 5.9%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. The share price decline has continued throughout the most recent three months, down 5.4%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. 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. For instance, we've identified 3 warning signs for Qingdao Sentury Tire (1 doesn't sit too well with us) that you should be aware of.

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 CN 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.