It's easy to feel disappointed if you buy a stock that goes down. But in the short term the market is a voting machine, and the share price movements may not reflect the underlying business performance. Over the year the Shanghai Zhenhua Heavy Industries Co., Ltd. (SHSE:600320) share price fell 15%. However, that's better than the market's overall decline of 26%. At least the damage isn't so bad if you look at the last three years, since the stock is down 3.0% in that time. Shareholders have had an even rougher run lately, with the share price down 15% in the last 90 days. But this could be related to the weak market, which is down 19% in the same period.

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

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).

Even though the Shanghai Zhenhua Heavy Industries share price is down over the year, its EPS actually improved. Of course, the situation might betray previous over-optimism about growth.

It's fair to say that the share price does not seem to be reflecting the EPS growth. But we might find some different metrics explain the share price movements better.

With a low yield of 1.7% we doubt that the dividend influences the share price much. Shanghai Zhenhua Heavy Industries managed to grow revenue over the last year, which is usually a real positive. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We know that Shanghai Zhenhua Heavy Industries has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Shanghai Zhenhua Heavy Industries stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

Although it hurts that Shanghai Zhenhua Heavy Industries returned a loss of 15% in the last twelve months, the broader market was actually worse, returning a loss of 26%. Given the total loss of 1.5% per year over five years, it seems returns have deteriorated in the last twelve months. While some investors do well specializing in buying companies that are struggling (but nonetheless undervalued), don't forget that Buffett said that 'turnarounds seldom turn'. 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. To that end, you should learn about the 3 warning signs we've spotted with Shanghai Zhenhua Heavy Industries (including 1 which shouldn't be ignored) .

We will like Shanghai Zhenhua Heavy Industries better if we see some big insider buys. While we wait, check out this free list of growing companies 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.

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.