If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. Long term Red Avenue New Materials Group Co., Ltd. (SHSE:603650) shareholders know that all too well, since the share price is down considerably over three years. So they might be feeling emotional about the 58% share price collapse, in that time. More recently, the share price has dropped a further 9.9% in a month.

Since Red Avenue New Materials Group has shed CN¥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.

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Red Avenue New Materials Group saw its EPS decline at a compound rate of 2.3% per year, over the last three years. The share price decline of 25% is actually steeper than the EPS slippage. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that Red Avenue New Materials Group has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

A Different Perspective

While it's never nice to take a loss, Red Avenue New Materials Group shareholders can take comfort that , including dividends,their trailing twelve month loss of 12% wasn't as bad as the market loss of around 19%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 8% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. 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. For instance, we've identified 2 warning signs for Red Avenue New Materials Group (1 can't be ignored) that you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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.