It's easy to match the overall market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in Far East Smarter Energy Co., Ltd. (SHSE:600869) have tasted that bitter downside in the last year, as the share price dropped 22%. That's disappointing when you consider the market declined 9.7%. On the other hand, the stock is actually up 8.4% over three years.

The recent uptick of 7.1% could be a positive sign of things to come, so let's take a look at historical fundamentals.

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.

Unhappily, Far East Smarter Energy had to report a 62% decline in EPS over the last year. The share price fall of 22% isn't as bad as the reduction in earnings per share. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that Far East Smarter Energy has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Far East Smarter Energy stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

While the broader market lost about 9.7% in the twelve months, Far East Smarter Energy shareholders did even worse, losing 22% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 3% per year over five years. 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 Far East Smarter Energy better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Far East Smarter Energy (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

Of course Far East Smarter Energy may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.