It's easy to match the overall market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Investors in Newland Digital Technology Co.,Ltd. (SZSE:000997) have tasted that bitter downside in the last year, as the share price dropped 26%. That's well below the market decline of 16%. At least the damage isn't so bad if you look at the last three years, since the stock is down 13% in that time. Furthermore, it's down 20% in about a quarter. That's not much fun for holders.

With the stock having lost 5.1% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

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.

Newland Digital TechnologyLtd managed to increase earnings per share from a loss to a profit, over the last 12 months.

Earnings per share growth rates aren't particularly useful for comparing with the share price, when a company has moved from loss to profit. So it makes sense to check out some other factors.

Newland Digital TechnologyLtd 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 company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We know that Newland Digital TechnologyLtd has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Newland Digital TechnologyLtd will earn in the future (free profit forecasts).

A Different Perspective

We regret to report that Newland Digital TechnologyLtd shareholders are down 25% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 16%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 2% per year over five years. 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. Case in point: We've spotted 2 warning signs for Newland Digital TechnologyLtd you should be aware of.

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.

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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.

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