Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in Guangdong Electric Power Development Co., Ltd. (SZSE:000539) have tasted that bitter downside in the last year, as the share price dropped 34%. That's well below the market decline of 19%. On the other hand, the stock is actually up 24% over three years. Furthermore, it's down 13% in about a quarter. That's not much fun for holders. However, one could argue that the price has been influenced by the general market, which is down 9.2% in the same timeframe.

Since Guangdong Electric Power Development has shed CN¥788m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

During the last year Guangdong Electric Power Development grew its earnings per share, moving from a loss to a profit.

When a company has just transitioned to profitability, earnings per share growth is not always the best way to look at the share price action. So it makes sense to check out some other factors.

Given the yield is quite low, at 0.4%, we doubt the dividend can shed much light on the share price. Guangdong Electric Power Development's revenue is actually up 9.5% over the last year. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We know that Guangdong Electric Power Development has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Guangdong Electric Power Development stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

While the broader market lost about 19% in the twelve months, Guangdong Electric Power Development shareholders did even worse, losing 34% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Longer term investors wouldn't be so upset, since they would have made 5%, 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 2 warning signs for Guangdong Electric Power Development (1 shouldn't be ignored!) that you should be aware of before investing here.

Of course Guangdong Electric Power Development 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.

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