Investors in Hualan Biological Engineering (SZSE:002007) have unfortunately lost 56% over the last three years

If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. Long term Hualan Biological Engineering Inc. (SZSE:002007) shareholders know that all too well, since the share price is down considerably over three years. So they might be feeling emotional about the 57% share price collapse, in that time. And over the last year the share price fell 27%, so we doubt many shareholders are delighted. Furthermore, it's down 17% in about a quarter. That's not much fun for holders. However, one could argue that the price has been influenced by the general market, which is down 11% in the same timeframe.

So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.

Check out our latest analysis for Hualan Biological Engineering

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Hualan Biological Engineering saw its EPS decline at a compound rate of 5.1% per year, over the last three years. The share price decline of 25% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that Hualan Biological Engineering has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

A Different Perspective

We regret to report that Hualan Biological Engineering shareholders are down 26% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 19%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 5% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Case in point: We've spotted 1 warning sign for Hualan Biological Engineering you should be aware of.

But note: Hualan Biological Engineering may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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