Earnings are growing at Winall Hi-tech Seed (SZSE:300087) but shareholders still don't like its prospects

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Winall Hi-tech Seed Co., Ltd. (SZSE:300087) shareholders have had that experience, with the share price dropping 44% in three years, versus a market decline of about 27%. The more recent news is of little comfort, with the share price down 40% in a year. Shareholders have had an even rougher run lately, with the share price down 20% in the last 90 days.

If the past week is anything to go by, investor sentiment for Winall Hi-tech Seed isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

See our latest analysis for Winall Hi-tech Seed

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

During the unfortunate three years of share price decline, Winall Hi-tech Seed actually saw its earnings per share (EPS) improve by 26% per year. 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.

The modest 1.6% 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. It's probably worth investigating Winall Hi-tech Seed further; while we may be missing something on this analysis, there might also be an opportunity.

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

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 lost about 14% in the twelve months, Winall Hi-tech Seed shareholders did even worse, losing 39% (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. Longer term investors wouldn't be so upset, since they would have made 8%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Winall Hi-tech Seed better, we need to consider many other factors. Take risks, for example - Winall Hi-tech Seed has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

Of course Winall Hi-tech Seed may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com