Earnings growth of 250% over 1 year hasn't been enough to translate into positive returns for CMK (TSE:6958) shareholders

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. Investors in CMK Corporation (TSE:6958) have tasted that bitter downside in the last year, as the share price dropped 40%. That falls noticeably short of the market return of around 11%. At least the damage isn't so bad if you look at the last three years, since the stock is down 9.3% in that time. Shareholders have had an even rougher run lately, with the share price down 34% in the last 90 days.

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

View our latest analysis for CMK

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

Even though the CMK 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 well worth checking out some other metrics, too.

CMK 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.

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

It is of course excellent to see how CMK has grown profits over the years, but the future is more important for shareholders. This free interactive report on CMK'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 11% in the last year, CMK shareholders lost 38% (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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 5% 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with CMK , and understanding them should be part of your investment process.

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 Japanese exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.