As Sajo Industries (KRX:007160) hikes 10% this past week, investors may now be noticing the company's three-year earnings growth

This week we saw the Sajo Industries Company Limited (KRX:007160) share price climb by 10%. But that doesn't change the fact that the returns over the last three years have been less than pleasing. Truth be told the share price declined 21% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.

While the stock has risen 10% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

View our latest analysis for Sajo Industries

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Although the share price is down over three years, Sajo Industries actually managed to grow EPS by 18% 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). Alternatively, growth expectations may have been unreasonable in the past.

Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

With a rather small yield of just 0.6% we doubt that the stock's share price is based on its dividend. 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 below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

If you are thinking of buying or selling Sajo Industries stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

We regret to report that Sajo Industries shareholders are down 15% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 3.5%. 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 0.2% 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. 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. Even so, be aware that Sajo Industries is showing 3 warning signs in our investment analysis , and 1 of those can't be ignored...

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on South Korean 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.