Optimism around Zhejiang Baida Precision Manufacturing (SHSE:603331) delivering new earnings growth may be shrinking as stock declines 10% this past week

The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Zhejiang Baida Precision Manufacturing Corp. (SHSE:603331) shareholders over the last year, as the share price declined 35%. That contrasts poorly with the market return of 7.2%. To make matters worse, the returns over three years have also been really disappointing (the share price is 33% lower than three years ago). More recently, the share price has dropped a further 17% in a month.

Since Zhejiang Baida Precision Manufacturing has shed CN¥194m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Check out our latest analysis for Zhejiang Baida Precision Manufacturing

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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).

Unhappily, Zhejiang Baida Precision Manufacturing had to report a 58% decline in EPS over the last year. The share price fall of 35% isn't as bad as the reduction in earnings per share. So the market may not be too worried about the EPS figure, at the moment -- or it may have expected earnings to drop faster.

You can see below how EPS has changed over time (discover 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

Zhejiang Baida Precision Manufacturing shareholders are down 34% for the year (even including dividends), but the market itself is up 7.2%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 5% over the last half decade. 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Zhejiang Baida Precision Manufacturing (at least 2 which shouldn't be ignored) , and understanding them should be part of your investment process.

We will like Zhejiang Baida Precision Manufacturing better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.