This month, we saw the Shanghai Shentong Metro Co.,Ltd. (SHSE:600834) up an impressive 30%. It's not great that the stock is down over the last three years. But that's not so bad when you consider its market is down 25%.

On a more encouraging note the company has added CN¥640m to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.

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.

Shanghai Shentong MetroLtd saw its EPS decline at a compound rate of 0.9% per year, over the last three years. This reduction in EPS is slower than the 8% annual reduction in the share price. So it seems the market was too confident about the business, in the past. Of course, with a P/E ratio of 61.38, the market remains optimistic.

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

This free interactive report on Shanghai Shentong MetroLtd's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

Although it hurts that Shanghai Shentong MetroLtd returned a loss of 0.6% in the last twelve months, the broader market was actually worse, returning a loss of 19%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 3% for each year. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. Before forming an opinion on Shanghai Shentong MetroLtd you might want to consider these 3 valuation metrics.

We will like Shanghai Shentong MetroLtd 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.

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