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. That downside risk was realized by Minmetals Development Co., Ltd. (SHSE:600058) shareholders over the last year, as the share price declined 17%. That's well below the market decline of 13%. The silver lining (for longer term investors) is that the stock is still 3.5% higher than it was three years ago.

Since Minmetals Development has shed CN¥386m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Unfortunately Minmetals Development reported an EPS drop of 53% for the last year. This fall in the EPS is significantly worse than the 17% the share price fall. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult. Indeed, with a P/E ratio of 55.99 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).

It might be well worthwhile taking a look at our free report on Minmetals Development's earnings, revenue and cash flow.

A Different Perspective

While the broader market lost about 13% in the twelve months, Minmetals Development shareholders did even worse, losing 17%. 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. 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. It's always interesting to track share price performance over the longer term. But to understand Minmetals Development better, we need to consider many other factors. For instance, we've identified 2 warning signs for Minmetals Development that you should be aware of.

We will like Minmetals Development 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.