Earnings growth of 9.6% over 3 years hasn't been enough to translate into positive returns for Alibaba Health Information Technology (HKG:241) shareholders

As every investor would know, not every swing hits the sweet spot. But you have a problem if you face massive losses more than once in a while. So spare a thought for the long term shareholders of Alibaba Health Information Technology Limited (HKG:241); the share price is down a whopping 89% in the last three years. That would certainly shake our confidence in the decision to own the stock. And over the last year the share price fell 58%, so we doubt many shareholders are delighted. The falls have accelerated recently, with the share price down 43% in the last three months. While a drop like that is definitely a body blow, money isn't as important as health and happiness.

After losing 10% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

View our latest analysis for Alibaba Health Information Technology

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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Although the share price is down over three years, Alibaba Health Information Technology actually managed to grow EPS by 32% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

We note that, in three years, revenue has actually grown at a 26% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Alibaba Health Information Technology further; while we may be missing something on this analysis, there might also be an opportunity.

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

Alibaba Health Information Technology is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So we recommend checking out this free report showing consensus forecasts

A Different Perspective

While the broader market lost about 19% in the twelve months, Alibaba Health Information Technology shareholders did even worse, losing 58%. 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 10% 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 1 warning sign for Alibaba Health Information Technology you should be aware of.

Of course Alibaba Health Information Technology 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 Hong Kong 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.