If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But the long term shareholders of Shandong Sinocera Functional Material Co., Ltd. (SZSE:300285) have had an unfortunate run in the last three years. So they might be feeling emotional about the 58% share price collapse, in that time. And over the last year the share price fell 23%, so we doubt many shareholders are delighted. The falls have accelerated recently, with the share price down 19% in the last three months.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

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...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the three years that the share price fell, Shandong Sinocera Functional Material's earnings per share (EPS) dropped by 7.2% each year. This reduction in EPS is slower than the 25% annual reduction in the share price. So it seems the market was too confident about the business, in the past.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that Shandong Sinocera Functional Material 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

Investors in Shandong Sinocera Functional Material had a tough year, with a total loss of 23% (including dividends), against a market gain of about 6.1%. 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 6% 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. Take risks, for example - Shandong Sinocera Functional Material has 1 warning sign we think you should be aware of.

We will like Shandong Sinocera Functional Material 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.