The three-year underlying earnings growth at GuangYuYuan Chinese Herbal Medicine (SHSE:600771) is promising, but the shareholders are still in the red over that time

Many investors define successful investing as beating the market average over the long term. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. Unfortunately, that's been the case for longer term GuangYuYuan Chinese Herbal Medicine Co., Ltd. (SHSE:600771) shareholders, since the share price is down 45% in the last three years, falling well short of the market decline of around 29%. And the ride hasn't got any smoother in recent times over the last year, with the price 43% lower in that time. Shareholders have had an even rougher run lately, with the share price down 30% in the last 90 days. But this could be related to the weak market, which is down 13% in the same period.

After losing 5.8% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

Check out our latest analysis for GuangYuYuan Chinese Herbal Medicine

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, GuangYuYuan Chinese Herbal Medicine moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. So given the share price is down it's worth checking some other metrics too.

We note that, in three years, revenue has actually grown at a 11% 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 GuangYuYuan Chinese Herbal Medicine 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).

If you are thinking of buying or selling GuangYuYuan Chinese Herbal Medicine stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

While the broader market lost about 15% in the twelve months, GuangYuYuan Chinese Herbal Medicine shareholders did even worse, losing 43%. 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 1.2% 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. 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 GuangYuYuan Chinese Herbal Medicine that you should be aware of.

Of course GuangYuYuan Chinese Herbal Medicine 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.