Jiangxi Huawu BrakeLtd's (SZSE:300095 three-year decrease in earnings delivers investors with a 35% loss

For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Jiangxi Huawu Brake Co.,Ltd. (SZSE:300095) shareholders, since the share price is down 36% in the last three years, falling well short of the market decline of around 21%. And over the last year the share price fell 35%, so we doubt many shareholders are delighted. And the share price decline continued over the last week, dropping some 11%.

After losing 11% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

Check out our latest analysis for Jiangxi Huawu BrakeLtd

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

Jiangxi Huawu BrakeLtd saw its EPS decline at a compound rate of 45% per year, over the last three years. In comparison the 14% compound annual share price decline isn't as bad as the EPS drop-off. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines. With a P/E ratio of 70.48, it's fair to say the market sees a brighter future for the business.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

This free interactive report on Jiangxi Huawu BrakeLtd'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 lost about 10% in the twelve months, Jiangxi Huawu BrakeLtd shareholders did even worse, losing 35% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 2% 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. It's always interesting to track share price performance over the longer term. But to understand Jiangxi Huawu BrakeLtd better, we need to consider many other factors. Take risks, for example - Jiangxi Huawu BrakeLtd has 3 warning signs we think you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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.