While shareholders of Shanghai Lingyun Industries Development (SHSE:900957) are in the red over the last three years, underlying earnings have actually grown

It is doubtless a positive to see that the Shanghai Lingyun Industries Development Co., Ltd (SHSE:900957) share price has gained some 78% in the last three months. But that doesn't change the fact that the returns over the last three years have been disappointing. Indeed, the share price is down a tragic 56% in the last three years. So the improvement may be a real relief to some. Perhaps the company has turned over a new leaf.

Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.

View our latest analysis for Shanghai Lingyun Industries Development

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

During the unfortunate three years of share price decline, Shanghai Lingyun Industries Development actually saw its earnings per share (EPS) improve by 3.7% per year. 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 pretty reasonable to suspect the market was previously to bullish on the stock, and has since moderated expectations. But it's possible a look at other metrics will be enlightening.

The company has kept revenue pretty healthy over the last three years, so we doubt that explains the falling share price. We're not entirely sure why the share price is dropped, but it does seem likely investors have become less optimistic about the business.

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 Lingyun Industries Development'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 lost about 14% in the twelve months, Shanghai Lingyun Industries Development shareholders did even worse, losing 29%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 9% per year over five years. 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. It's always interesting to track share price performance over the longer term. But to understand Shanghai Lingyun Industries Development better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Shanghai Lingyun Industries Development (of which 2 are a bit concerning!) you should know about.

Of course Shanghai Lingyun Industries Development 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.