Investors can approximate the average 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. For example, the PhiChem Corporation (SZSE:300398) share price is down 38% in the last year. That falls noticeably short of the market decline of around 8.9%. To make matters worse, the returns over three years have also been really disappointing (the share price is 30% lower than three years ago). Shareholders have had an even rougher run lately, with the share price down 11% in the last 90 days. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

Since PhiChem has shed CN¥446m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

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...' 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).

Unfortunately PhiChem reported an EPS drop of 74% for the last year. The share price fall of 38% isn't as bad as the reduction in earnings per share. So the market may not be too worried about the EPS figure, at the moment -- or it may have expected earnings to drop faster. With a P/E ratio of 58.13, it's fair to say the market sees an EPS rebound on the cards.

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

It might be well worthwhile taking a look at our free report on PhiChem's earnings, revenue and cash flow.

A Different Perspective

While the broader market lost about 8.9% in the twelve months, PhiChem shareholders did even worse, losing 38% (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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 3% 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 PhiChem better, we need to consider many other factors. For example, we've discovered 3 warning signs for PhiChem that you should be aware of before investing here.

We will like PhiChem 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.