Hunan HuashengLtd (SHSE:600156 shareholders incur further losses as stock declines 10% this week, taking one-year losses to 11%

It's easy to match the overall market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. Unfortunately the Hunan Huasheng CO.,Ltd (SHSE:600156) share price slid 11% over twelve months. That contrasts poorly with the market return of 6.1%. The silver lining (for longer term investors) is that the stock is still 1.9% higher than it was three years ago. It's down 24% in about a month.

Since Hunan HuashengLtd has shed CN¥197m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Hunan HuashengLtd

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the last year Hunan HuashengLtd grew its earnings per share, moving from a loss to a profit.

Earnings per share growth rates aren't particularly useful for comparing with the share price, when a company has moved from loss to profit. So it makes sense to check out some other factors.

In contrast, the 19% drop in revenue is a real concern. Many investors see falling revenue as a likely precursor to lower earnings, so this could well explain the weak share price.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

While the broader market gained around 6.1% in the last year, Hunan HuashengLtd shareholders lost 11%. 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 0.3% 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. 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 example, we've discovered 1 warning sign for Hunan HuashengLtd that you should be aware of before investing here.

But note: Hunan HuashengLtd may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.