Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Unfortunately the Heilongjiang ZBD Pharmaceutical Co., Ltd. (SHSE:603567) share price slid 26% over twelve months. That's disappointing when you consider the market declined 15%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 8.7% in three years. The falls have accelerated recently, with the share price down 17% in the last three months.

With the stock having lost 3.9% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

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.

During the unfortunate twelve months during which the Heilongjiang ZBD Pharmaceutical share price fell, it actually saw its earnings per share (EPS) improve by 108%. It's quite possible that growth expectations may have been unreasonable in the past.

The divergence between the EPS and the share price is quite notable, during the year. So it's easy to justify a look at some other metrics.

Given the yield is quite low, at 0.3%, we doubt the dividend can shed much light on the share price. On the other hand, we're certainly perturbed by the 8.7% decline in Heilongjiang ZBD Pharmaceutical's revenue. Many investors see falling revenue as a likely precursor to lower earnings, so this could well explain the weak share price.

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

This free interactive report on Heilongjiang ZBD Pharmaceutical's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

While the broader market lost about 15% in the twelve months, Heilongjiang ZBD Pharmaceutical shareholders did even worse, losing 26% (even including dividends). 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 3% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Heilongjiang ZBD Pharmaceutical (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese exchanges.

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