For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Hanwei Electronics Group Corporation (SZSE:300007) shareholders, since the share price is down 50% in the last three years, falling well short of the market decline of around 31%. And more recent buyers are having a tough time too, with a drop of 30% in the last year. Shareholders have had an even rougher run lately, with the share price down 12% in the last 90 days. But this could be related to the weak market, which is down 12% in the same period.

Since Hanwei Electronics Group 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.

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

During the three years that the share price fell, Hanwei Electronics Group's earnings per share (EPS) dropped by 23% each year. This fall in EPS isn't far from the rate of share price decline, which was 21% per year. So it seems that investor expectations of the company are staying pretty steady, despite the disappointment. It seems like the share price is reflecting the declining earnings per share.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

This free interactive report on Hanwei Electronics Group's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

While the broader market lost about 16% in the twelve months, Hanwei Electronics Group shareholders did even worse, losing 29% (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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 1.2% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Case in point: We've spotted 3 warning signs for Hanwei Electronics Group you should be aware of.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.