Yum China Holdings (NYSE:YUMC) investors are sitting on a loss of 38% if they invested a year ago

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. For example, the Yum China Holdings, Inc. (NYSE:YUMC) share price is down 39% in the last year. That falls noticeably short of the market return of around 26%. Notably, shareholders had a tough run over the longer term, too, with a drop of 35% in the last three years.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

See our latest analysis for Yum China Holdings

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.

During the unfortunate twelve months during which the Yum China Holdings share price fell, it actually saw its earnings per share (EPS) improve by 17%. It could be that the share price was previously over-hyped.

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.

Given the yield is quite low, at 1.8%, we doubt the dividend can shed much light on the share price. Yum China Holdings' revenue is actually up 6.8% over the last year. 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).

It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. If you are thinking of buying or selling Yum China Holdings stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

Investors in Yum China Holdings had a tough year, with a total loss of 38% (including dividends), against a market gain of about 26%. 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 4% over the last half decade. 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. It's always interesting to track share price performance over the longer term. But to understand Yum China Holdings better, we need to consider many other factors. Take risks, for example - Yum China Holdings has 1 warning sign we think you should be aware of.

Yum China Holdings is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been buying.

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