Over the last month the Shenzhen Kangtai Biological Products Co., Ltd. (SZSE:300601) has been much stronger than before, rebounding by 37%. But that doesn't change the fact that the returns over the last three years have been stomach churning. Indeed, the share price is down a whopping 75% in the last three years. So it's about time shareholders saw some gains. Of course the real question is whether the business can sustain a turnaround.

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 the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Shenzhen Kangtai Biological Products saw its EPS decline at a compound rate of 13% per year, over the last three years. This reduction in EPS is slower than the 37% annual reduction in the share price. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that Shenzhen Kangtai Biological Products has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

A Different Perspective

Investors in Shenzhen Kangtai Biological Products had a tough year, with a total loss of 35% (including dividends), against a market gain of about 9.9%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 10% 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. For example, we've discovered 3 warning signs for Shenzhen Kangtai Biological Products that you should be aware of before investing here.

We will like Shenzhen Kangtai Biological Products 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.