Most people feel a little frustrated if a stock they own goes down in price. But sometimes a share price fall can have more to do with market conditions than the performance of the specific business. The Shengda Resources Co.,Ltd. (SZSE:000603) is down 12% over a year, but the total shareholder return is -12% once you include the dividend. And that total return actually beats the market decline of 15%. Looking at the longer term, the stock is down 10% over three years. The falls have accelerated recently, with the share price down 12% in the last three months.

Since Shengda ResourcesLtd has shed CN¥830m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

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.

Unfortunately Shengda ResourcesLtd reported an EPS drop of 65% for the last year. The share price fall of 12% isn't as bad as the reduction in earnings per share. 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 65.44 there is obviously some real optimism that earnings will bounce back.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

Dive deeper into Shengda ResourcesLtd's key metrics by checking this interactive graph of Shengda ResourcesLtd's earnings, revenue and cash flow.

A Different Perspective

While it's certainly disappointing to see that Shengda ResourcesLtd shares lost 12% throughout the year, that wasn't as bad as the market loss of 15%. Unfortunately, last year's performance may indicate unresolved challenges, given that it's worse than the annualised loss of 1.4% over the last half decade. While some investors do well specializing in buying companies that are struggling (but nonetheless undervalued), don't forget that Buffett said that 'turnarounds seldom turn'. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Shengda ResourcesLtd you should know about.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com