38% earnings growth over 1 year has not materialized into gains for Shandong Yisheng Livestock & Poultry Breeding (SZSE:002458) shareholders over that period

It's easy to match the overall market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. For example, the Shandong Yisheng Livestock & Poultry Breeding Co., Ltd. (SZSE:002458) share price is down 23% in the last year. That falls noticeably short of the market decline of around 12%. At least the damage isn't so bad if you look at the last three years, since the stock is down 5.8% in that time. Shareholders have had an even rougher run lately, with the share price down 11% in the last 90 days.

With the stock having lost 5.5% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

View our latest analysis for Shandong Yisheng Livestock & Poultry Breeding

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 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).

Even though the Shandong Yisheng Livestock & Poultry Breeding share price is down over the year, its EPS actually improved. It's quite possible that growth expectations may have been unreasonable in the past.

It's fair to say that the share price does not seem to be reflecting the EPS growth. But we might find some different metrics explain the share price movements better.

Shandong Yisheng Livestock & Poultry Breeding managed to grow revenue over the last year, which is usually a real positive. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

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

A Different Perspective

We regret to report that Shandong Yisheng Livestock & Poultry Breeding shareholders are down 21% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 12%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 1.6% 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. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Shandong Yisheng Livestock & Poultry Breeding you should know about.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.