The five-year underlying earnings growth at Fujian Yuanli Active CarbonLtd (SZSE:300174) is promising, but the shareholders are still in the red over that time

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But the main game is to find enough winners to more than offset the losers At this point some shareholders may be questioning their investment in Fujian Yuanli Active Carbon Co.,Ltd. (SZSE:300174), since the last five years saw the share price fall 35%. More recently, the share price has dropped a further 9.7% in a month. But this could be related to poor market conditions -- stocks are down 6.3% in the same time.

After losing 9.1% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

See our latest analysis for Fujian Yuanli Active CarbonLtd

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.

While the share price declined over five years, Fujian Yuanli Active CarbonLtd actually managed to increase EPS by an average of 34% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.

Due to the lack of correlation between the EPS growth and the falling share price, it's worth taking a look at other metrics to try to understand the share price movement.

We don't think that the 0.7% is big factor in the share price, since it's quite small, as dividends go. In contrast to the share price, revenue has actually increased by 11% a year in the five year period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

We know that Fujian Yuanli Active CarbonLtd has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for Fujian Yuanli Active CarbonLtd in this interactive graph of future profit estimates.

A Different Perspective

While it's certainly disappointing to see that Fujian Yuanli Active CarbonLtd shares lost 8.1% throughout the year, that wasn't as bad as the market loss of 14%. Unfortunately, last year's performance may indicate unresolved challenges, given that it's worse than the annualised loss of 6% over the last half decade. Whilst Baron Rothschild does tell the investor "buy when there's blood in the streets, even if the blood is your own", buyers would need to examine the data carefully to be comfortable that the business itself is sound. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Fujian Yuanli Active CarbonLtd , and understanding them should be part of your investment process.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.

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