Earnings are growing at Medicalsystem Biotechnology (SZSE:300439) but shareholders still don't like its prospects

If you love investing in stocks you're bound to buy some losers. Long term Medicalsystem Biotechnology Co., Ltd (SZSE:300439) shareholders know that all too well, since the share price is down considerably over three years. Sadly for them, the share price is down 54% in that time. More recently, the share price has dropped a further 12% in a month. However, we note the price may have been impacted by the broader market, which is down 6.1% in the same time period.

Since Medicalsystem Biotechnology has shed CN¥392m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Check out our latest analysis for Medicalsystem Biotechnology

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Although the share price is down over three years, Medicalsystem Biotechnology actually managed to grow EPS by 11% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

The modest 1.3% dividend yield is unlikely to be guiding the market view of the stock. Arguably the revenue decline of 9.1% per year has people thinking Medicalsystem Biotechnology is shrinking. And that's not surprising, since it seems unlikely that EPS growth can continue for long in the absence of revenue growth.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Take a more thorough look at Medicalsystem Biotechnology's financial health with this free report on its balance sheet.

A Different Perspective

Medicalsystem Biotechnology shareholders are down 13% for the year (even including dividends), but the market itself is up 7.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. 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. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Medicalsystem Biotechnology you should know about.

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.