In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Songcheng Performance Development Co.,Ltd (SZSE:300144) shareholders have had that experience, with the share price dropping 43% in three years, versus a market decline of about 11%. Shareholders have had an even rougher run lately, with the share price down 11% in the last 90 days.

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 Songcheng Performance DevelopmentLtd

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 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.

Songcheng Performance DevelopmentLtd became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. So given the share price is down it's worth checking some other metrics too.

The modest 0.5% dividend yield is unlikely to be guiding the market view of the stock. Arguably the revenue decline of 4.0% per year has people thinking Songcheng Performance DevelopmentLtd is shrinking. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.

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

Songcheng Performance DevelopmentLtd is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling Songcheng Performance DevelopmentLtd stock, you should check out this free report showing analyst consensus estimates for future profits.

A Different Perspective

We regret to report that Songcheng Performance DevelopmentLtd shareholders are down 14% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 3.3%. 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 1.7% over the last half decade. 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. Is Songcheng Performance DevelopmentLtd cheap compared to other companies? These 3 valuation measures might help you decide.

Of course Songcheng Performance DevelopmentLtd may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.