Earnings growth of 56% over 1 year hasn't been enough to translate into positive returns for Formosa Oilseed Processing (TWSE:1225) shareholders

Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. For example, the Formosa Oilseed Processing Co., Ltd. (TWSE:1225) share price is down 26% in the last year. That contrasts poorly with the market return of 32%. Looking at the longer term, the stock is down 22% over three years. In the last ninety days we've seen the share price slide 68%.

Since Formosa Oilseed Processing has shed NT$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 Formosa Oilseed Processing

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.

During the unfortunate twelve months during which the Formosa Oilseed Processing share price fell, it actually saw its earnings per share (EPS) improve by 56%. It's quite possible that growth expectations may have been unreasonable in the past.

The divergence between the EPS and the share price is quite notable, during the year. So it's well worth checking out some other metrics, too.

In contrast, the 12% drop in revenue is a real concern. Many investors see falling revenue as a likely precursor to lower earnings, so this could well explain the weak share price.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Take a more thorough look at Formosa Oilseed Processing's financial health with this free report on its balance sheet.

A Different Perspective

Investors in Formosa Oilseed Processing had a tough year, with a total loss of 25% (including dividends), against a market gain of about 32%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 7% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Formosa Oilseed Processing (at least 3 which are concerning) , and understanding them should be part of your investment process.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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