Market is not liking Yantai Dongcheng Pharmaceutical GroupLtd's (SZSE:002675) earnings decline as stock retreats 6.8% this week

It's easy to match the overall market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. For example, the Yantai Dongcheng Pharmaceutical Group Co.,Ltd. (SZSE:002675) share price is down 27% in the last year. That's well below the market return of 2.2%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 10% in three years. And the share price decline continued over the last week, dropping some 6.8%. However, this move may have been influenced by the broader market, which fell 4.4% in that time.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

See our latest analysis for Yantai Dongcheng Pharmaceutical GroupLtd

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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).

Unfortunately Yantai Dongcheng Pharmaceutical GroupLtd reported an EPS drop of 58% for the last year. The share price fall of 27% isn't as bad as the reduction in earnings per share. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult. Indeed, with a P/E ratio of 74.64 there is obviously some real optimism that earnings will bounce back.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Dive deeper into Yantai Dongcheng Pharmaceutical GroupLtd's key metrics by checking this interactive graph of Yantai Dongcheng Pharmaceutical GroupLtd's earnings, revenue and cash flow.

A Different Perspective

Yantai Dongcheng Pharmaceutical GroupLtd shareholders are down 26% for the year (even including dividends), but the market itself is up 2.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 1.1% 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. Case in point: We've spotted 2 warning signs for Yantai Dongcheng Pharmaceutical GroupLtd you should be aware of.

Of course Yantai Dongcheng Pharmaceutical GroupLtd 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.