Positive earnings growth hasn't been enough to get Yifeng Pharmacy Chain (SHSE:603939) shareholders a favorable return over the last three years

You can invest in an index fund if you want to make sure your returns approximately match the overall market. By comparison, an individual stock is unlikely to match market returns - and could well fall short. The Yifeng Pharmacy Chain Co., Ltd. (SHSE:603939) is such an example; over three years its share price is down 39% versus a marketdecline of 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 31% in the last 90 days. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.

The recent uptick of 5.1% could be a positive sign of things to come, so let's take a look at historical fundamentals.

See our latest analysis for Yifeng Pharmacy Chain

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 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.

Although the share price is down over three years, Yifeng Pharmacy Chain actually managed to grow EPS by 19% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.

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.

We note that, in three years, revenue has actually grown at a 19% annual rate, so that doesn't seem to be a reason to sell shares. This analysis is just perfunctory, but it might be worth researching Yifeng Pharmacy Chain more closely, as sometimes stocks fall unfairly. This could present an opportunity.

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

Yifeng Pharmacy Chain is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.

A Different Perspective

While the broader market lost about 17% in the twelve months, Yifeng Pharmacy Chain shareholders did even worse, losing 35% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. 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. It's always interesting to track share price performance over the longer term. But to understand Yifeng Pharmacy Chain better, we need to consider many other factors. For example, we've discovered 2 warning signs for Yifeng Pharmacy Chain that you should be aware of before investing here.

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.