The one-year earnings decline is not helping Kyowa Kirin's (TSE:4151 share price, as stock falls another 3.6% in past week

It's easy to match the overall 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. For example, the Kyowa Kirin Co., Ltd. (TSE:4151) share price is down 23% in the last year. That falls noticeably short of the market return of around 17%. However, the longer term returns haven't been so bad, with the stock down 19% in the last three years.

If the past week is anything to go by, investor sentiment for Kyowa Kirin isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

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

Unhappily, Kyowa Kirin had to report a 60% decline in EPS over the last year. This fall in the EPS is significantly worse than the 23% the share price fall. It may have been that the weak EPS was not as bad as some had feared.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

A Different Perspective

Investors in Kyowa Kirin had a tough year, with a total loss of 22% (including dividends), against a market gain of about 17%. 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 0.3% over the last half decade. 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. 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. Take risks, for example - Kyowa Kirin has 2 warning signs we think you should be aware of.

We will like Kyowa Kirin better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.