By buying an index fund, you can roughly match the market return with ease. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at Chongqing Pharscin Pharmaceutical Co., Ltd. (SZSE:002907), which is up 13%, over three years, soundly beating the market decline of 30% (not including dividends).

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Over the last three years, Chongqing Pharscin Pharmaceutical failed to grow earnings per share, which fell 31% (annualized).

The strong decline in earnings per share suggests the market isn't using EPS to judge the company. So we'll need to take a look at some different metrics to try to understand why the share price remains solid.

The modest 0.4% dividend yield is unlikely to be propping up the share price. You can only imagine how long term shareholders feel about the declining revenue trend (slipping at 9.4% per year). The only thing that's clear is there is low correlation between Chongqing Pharscin Pharmaceutical's share price and its historic fundamental data. Further research may be required!

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Dive deeper into the earnings by checking this interactive graph of Chongqing Pharscin Pharmaceutical's earnings, revenue and cash flow.

A Different Perspective

Although it hurts that Chongqing Pharscin Pharmaceutical returned a loss of 9.3% in the last twelve months, the broader market was actually worse, returning a loss of 18%. Given the total loss of 0.9% per year over five years, it seems returns have deteriorated in the last twelve months. While some investors do well specializing in buying companies that are struggling (but nonetheless undervalued), don't forget that Buffett said that 'turnarounds seldom turn'. It's always interesting to track share price performance over the longer term. But to understand Chongqing Pharscin Pharmaceutical better, we need to consider many other factors. Take risks, for example - Chongqing Pharscin Pharmaceutical has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

But note: Chongqing Pharscin Pharmaceutical may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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