The simplest way to benefit from a rising market is to buy an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by Lucky Harvest Co., Ltd. (SZSE:002965) shareholders over the last year, as the share price declined 33%. That's disappointing when you consider the market returned 6.8%. On the bright side, the stock is actually up 1.1% in the last three years. And the share price decline continued over the last week, dropping some 6.0%.

After losing 6.0% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 unfortunate twelve months during which the Lucky Harvest share price fell, it actually saw its earnings per share (EPS) improve by 9.7%. Of course, the situation might betray previous over-optimism about growth.

The divergence between the EPS and the share price is quite notable, during the year. So it's easy to justify a look at some other metrics.

Lucky Harvest managed to grow revenue over the last year, which is usually a real positive. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

It is of course excellent to see how Lucky Harvest has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

Investors in Lucky Harvest had a tough year, with a total loss of 31% (including dividends), against a market gain of about 6.8%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 2% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Lucky Harvest better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Lucky Harvest 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.

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