The one-year underlying earnings growth at Synchro Food (TSE:3963) is promising, but the shareholders are still in the red over that time

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by Synchro Food Co., Ltd. (TSE:3963) shareholders over the last year, as the share price declined 49%. That falls noticeably short of the market return of around 20%. The silver lining (for longer term investors) is that the stock is still 5.7% higher than it was three years ago. The falls have accelerated recently, with the share price down 30% in the last three months.

Since Synchro Food has shed JP¥1.2b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

See our latest analysis for Synchro Food

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...' 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.

Even though the Synchro Food share price is down over the year, its EPS actually improved. Of course, the situation might betray previous over-optimism about growth.

It's surprising to see the share price fall so much, despite the improved EPS. So it's easy to justify a look at some other metrics.

Given the yield is quite low, at 1.4%, we doubt the dividend can shed much light on the share price. Synchro Food managed to grow revenue over the last year, which is usually a real positive. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

This free interactive report on Synchro Food's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Synchro Food shareholders are down 48% for the year (even including dividends), but the market itself is up 20%. 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 6% 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. 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. For instance, we've identified 2 warning signs for Synchro Food that you should be aware of.

Of course Synchro Food 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 Japanese 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.