Positive earnings growth hasn't been enough to get ValiantLtd (SZSE:002643) shareholders a favorable return over the last year

The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Investors in Valiant Co.,Ltd (SZSE:002643) have tasted that bitter downside in the last year, as the share price dropped 30%. That falls noticeably short of the market decline of around 8.0%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 20% in three years. The falls have accelerated recently, with the share price down 17% in the last three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

On a more encouraging note the company has added CN¥409m to its market cap in just the last 7 days, so let's see if we can determine what's driven the one-year loss for shareholders.

Check out our latest analysis for ValiantLtd

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.

Even though the ValiantLtd share price is down over the year, its EPS actually improved. Of course, the situation might betray previous over-optimism about growth.

It seems quite likely that the market was expecting higher growth from the stock. But looking to other metrics might better explain the share price change.

In contrast, the 11% drop in revenue is a real concern. If the market sees the weak revenue as jeopardising EPS, that could explain the lower 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

We regret to report that ValiantLtd shareholders are down 29% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 8.0%. 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. On the bright side, long term shareholders have made money, with a gain of 5% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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 instance, we've identified 1 warning sign for ValiantLtd that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.