It's easy to match the overall 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. Investors in Sociedad Química y Minera de Chile S.A. (NYSE:SQM) have tasted that bitter downside in the last year, as the share price dropped 42%. That contrasts poorly with the market return of 22%. To make matters worse, the returns over three years have also been really disappointing (the share price is 37% lower than three years ago). The falls have accelerated recently, with the share price down 23% in the last three months. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.

Since Sociedad Química y Minera de Chile has shed US$1.3b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

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.

Unhappily, Sociedad Química y Minera de Chile had to report a 99% decline in EPS over the last year. This fall in the EPS is significantly worse than the 42% the share price fall. So the market may not be too worried about the EPS figure, at the moment -- or it may have expected earnings to drop faster. Indeed, with a P/E ratio of 368.06 there is obviously some real optimism that earnings will bounce back.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

This free interactive report on Sociedad Química y Minera de Chile's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

Sociedad Química y Minera de Chile shareholders are down 41% for the year (even including dividends), but the market itself is up 22%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 8%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Sociedad Química y Minera de Chile better, we need to consider many other factors. Even so, be aware that Sociedad Química y Minera de Chile is showing 3 warning signs in our investment analysis , and 2 of those are significant...

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.