While shareholders of Zhejiang Jiuzhou Pharmaceutical (SHSE:603456) are in the red over the last three years, underlying earnings have actually grown

Investing in stocks inevitably means buying into some companies that perform poorly. But the long term shareholders of Zhejiang Jiuzhou Pharmaceutical Co., Ltd (SHSE:603456) have had an unfortunate run in the last three years. So they might be feeling emotional about the 69% share price collapse, in that time. And the ride hasn't got any smoother in recent times over the last year, with the price 46% lower in that time.

The recent uptick of 3.4% could be a positive sign of things to come, so let's take a look at historical fundamentals.

See our latest analysis for Zhejiang Jiuzhou Pharmaceutical

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Although the share price is down over three years, Zhejiang Jiuzhou Pharmaceutical actually managed to grow EPS by 27% per year in that time. 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.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

We note that, in three years, revenue has actually grown at a 17% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Zhejiang Jiuzhou Pharmaceutical further; while we may be missing something on this analysis, there might also be an opportunity.

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

Take a more thorough look at Zhejiang Jiuzhou Pharmaceutical's financial health with this free report on its balance sheet.

A Different Perspective

While the broader market lost about 15% in the twelve months, Zhejiang Jiuzhou Pharmaceutical shareholders did even worse, losing 43% (even including dividends). 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. Longer term investors wouldn't be so upset, since they would have made 11%, 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 Zhejiang Jiuzhou Pharmaceutical better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Zhejiang Jiuzhou Pharmaceutical you should be aware of, and 1 of them is potentially serious.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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