The three-year underlying earnings growth at Shenzhen Yinghe Technology (SZSE:300457) is promising, but the shareholders are still in the red over that time

Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Shenzhen Yinghe Technology Co., Ltd (SZSE:300457) shareholders, since the share price is down 50% in the last three years, falling well short of the market decline of around 33%. The more recent news is of little comfort, with the share price down 36% in a year. Shareholders have had an even rougher run lately, with the share price down 24% in the last 90 days. Of course, this share price action may well have been influenced by the 12% decline in the broader market, throughout the period.

With the stock having lost 4.4% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

Check out our latest analysis for Shenzhen Yinghe Technology

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 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).

Although the share price is down over three years, Shenzhen Yinghe Technology actually managed to grow EPS by 198% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

The modest 1.3% dividend yield is unlikely to be guiding the market view of the stock. Revenue is actually up 29% over the three years, so the share price drop doesn't seem to hinge on revenue, either. This analysis is just perfunctory, but it might be worth researching Shenzhen Yinghe Technology more closely, as sometimes stocks fall unfairly. This could present an opportunity.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

It is of course excellent to see how Shenzhen Yinghe Technology has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Shenzhen Yinghe Technology stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

We regret to report that Shenzhen Yinghe Technology shareholders are down 35% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 19%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 3% 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 be aware of the 1 warning sign we've spotted with Shenzhen Yinghe Technology .

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.