As an investor its worth striving to ensure your overall portfolio beats the market average. But if you try your hand at stock picking, you risk returning less than the market. Unfortunately, that's been the case for longer term Double Medical Technology Inc. (SZSE:002901) shareholders, since the share price is down 50% in the last three years, falling well short of the market decline of around 32%. Shareholders have had an even rougher run lately, with the share price down 14% in the last 90 days. But this could be related to the weak market, which is down 11% in the same period.

While the stock has risen 7.6% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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).

During the three years that the share price fell, Double Medical Technology's earnings per share (EPS) dropped by 55% each year. This fall in the EPS is worse than the 20% compound annual share price fall. So, despite the prior disappointment, shareholders must have some confidence the situation will improve, longer term. With a P/E ratio of 159.67, it's fair to say the market sees a brighter future for the business.

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

We know that Double Medical Technology has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

A Different Perspective

Double Medical Technology shareholders are down 19% over twelve months (even including dividends), which isn't far from the market return of -19%. Unfortunately, last year's performance is a deterioration of an already poor long term track record, given the loss of 7% per year over the last five years. It will probably take a substantial improvement in the fundamental performance for the company to reverse this 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. Take risks, for example - Double Medical Technology has 2 warning signs (and 1 which doesn't sit too well with us) we think 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.