Earnings are growing at Shanghai Ace Investment&DevelopmentLtd (SHSE:603329) but shareholders still don't like its prospects

Investors can approximate the average market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. That downside risk was realized by Shanghai Ace Investment&Development Co.,Ltd (SHSE:603329) shareholders over the last year, as the share price declined 27%. That's well below the market return of 7.2%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 20% in three years. More recently, the share price has dropped a further 12% in a month. But this could be related to poor market conditions -- stocks are down 6.1% in the same 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 Shanghai Ace Investment&DevelopmentLtd

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

The last year saw Shanghai Ace Investment&DevelopmentLtd's EPS really take off. While the business is unlikely to sustain such a high growth rate for long, it's great to see. So we are surprised the share price is down. Some different data might shed some more light on the situation.

Given the yield is quite low, at 0.8%, we doubt the dividend can shed much light on the share price. Shanghai Ace Investment&DevelopmentLtd managed to grow revenue over the last year, which is usually a real positive. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

This free interactive report on Shanghai Ace Investment&DevelopmentLtd's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

While the broader market gained around 7.2% in the last year, Shanghai Ace Investment&DevelopmentLtd shareholders lost 27% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 2% over the last half decade. 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. Even so, be aware that Shanghai Ace Investment&DevelopmentLtd is showing 2 warning signs in our investment analysis , 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.