The truth is that if you invest for long enough, you're going to end up with some losing stocks. But long term Giga Device Semiconductor Inc. (SHSE:603986) shareholders have had a particularly rough ride in the last three year. So they might be feeling emotional about the 52% share price collapse, in that time. More recently, the share price has dropped a further 19% in a month.

So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.

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.

During the three years that the share price fell, Giga Device Semiconductor's earnings per share (EPS) dropped by 41% each year. This fall in the EPS is worse than the 22% compound annual share price fall. So, despite the prior disappointment, shareholders must have some confidence the situation will improve, longer term. This positive sentiment is also reflected in the generous P/E ratio of 243.59.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. It might be well worthwhile taking a look at our free report on Giga Device Semiconductor's earnings, revenue and cash flow.

A Different Perspective

The total return of 19% received by Giga Device Semiconductor shareholders over the last year isn't far from the market return of -18%. The silver lining is that longer term investors would have made a total return of 9% per year over half a decade. If the fundamental data remains strong, and the share price is simply down on sentiment, then this could be an opportunity worth investigating. 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 for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Giga Device Semiconductor , and understanding them should be part of your investment process.

We will like Giga Device Semiconductor better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) 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.