As an investor its worth striving to ensure your overall portfolio beats the market average. But if you try your hand at stock picking, your risk returning less than the market. Unfortunately, that's been the case for longer term Zhejiang Huahai Pharmaceutical Co., Ltd. (SHSE:600521) shareholders, since the share price is down 47% in the last three years, falling well short of the market decline of around 11%. The more recent news is of little comfort, with the share price down 33% in a year.

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

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 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).

During the unfortunate three years of share price decline, Zhejiang Huahai Pharmaceutical actually saw its earnings per share (EPS) improve by 6.0% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

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 1.8% we doubt that the stock's share price is based on its dividend. Revenue is actually up 13% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Zhejiang Huahai Pharmaceutical further; while we may be missing something on this analysis, there might also be an opportunity.

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

We know that Zhejiang Huahai Pharmaceutical has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for Zhejiang Huahai Pharmaceutical in this interactive graph of future profit estimates.

A Different Perspective

We regret to report that Zhejiang Huahai Pharmaceutical shareholders are down 32% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 12%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.6% 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 Zhejiang Huahai Pharmaceutical better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Zhejiang Huahai Pharmaceutical you should be aware of.

We will like Zhejiang Huahai Pharmaceutical better if we see some big insider buys. While we wait, check out this free list of growing companies 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 Chinese 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.