The five-year loss for Fuda Alloy MaterialsLtd (SHSE:603045) shareholders likely driven by its shrinking earnings

While it may not be enough for some shareholders, we think it is good to see the Fuda Alloy Materials Co.,Ltd (SHSE:603045) share price up 22% in a single quarter. But that doesn't change the fact that the returns over the last five years have been less than pleasing. In fact, the share price is down 28%, which falls well short of the return you could get by buying an index fund.

On a more encouraging note the company has added CN¥202m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.

Check out our latest analysis for Fuda Alloy MaterialsLtd

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.

During the five years over which the share price declined, Fuda Alloy MaterialsLtd's earnings per share (EPS) dropped by 4.9% each year. This reduction in EPS is less than the 6% annual reduction in the share price. This implies that the market was previously too optimistic about the stock.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

This free interactive report on Fuda Alloy MaterialsLtd's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

While the broader market gained around 3.3% in the last year, Fuda Alloy MaterialsLtd shareholders lost 26% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 5% 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. 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 learn about the 3 warning signs we've spotted with Fuda Alloy MaterialsLtd (including 2 which are a bit unpleasant) .

Of course Fuda Alloy MaterialsLtd 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.