If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But long term Rongsheng Petrochemical Co., Ltd. (SZSE:002493) shareholders have had a particularly rough ride in the last three year. Unfortunately, they have held through a 54% decline in the share price in that time. And the ride hasn't got any smoother in recent times over the last year, with the price 29% lower in that time. Furthermore, it's down 19% in about a quarter. That's not much fun for holders. Of course, this share price action may well have been influenced by the 8.1% decline in the broader market, throughout the period.

Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

During five years of share price growth, Rongsheng Petrochemical moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. So it's worth looking at other metrics to try to understand the share price move.

The modest 1.1% dividend yield is unlikely to be guiding the market view of the stock. Revenue is actually up 30% over the three years, so the share price drop doesn't seem to hinge on revenue, either. This analysis is just perfunctory, but it might be worth researching Rongsheng Petrochemical more closely, as sometimes stocks fall unfairly. This could present an opportunity.

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

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

A Different Perspective

We regret to report that Rongsheng Petrochemical shareholders are down 28% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 18%. 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. Longer term investors wouldn't be so upset, since they would have made 5%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Even so, be aware that Rongsheng Petrochemical is showing 2 warning signs in our investment analysis , and 1 of those can't be ignored...

Of course Rongsheng Petrochemical 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.

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