Sichuan Lutianhua Company Limited By Shares (SZSE:000912) shareholders should be happy to see the share price up 18% in the last month. But that doesn't change the fact that the returns over the last three years have been less than pleasing. Truth be told the share price declined 44% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.

While the stock has risen 9.7% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Sichuan Lutianhua Company Limited By Shares saw its EPS decline at a compound rate of 39% per year, over the last three years. In comparison the 17% compound annual share price decline isn't as bad as the EPS drop-off. So, despite the prior disappointment, shareholders must have some confidence the situation will improve, longer term. This positive sentiment is also reflected in the generous P/E ratio of 48.99.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It might be well worthwhile taking a look at our free report on Sichuan Lutianhua Company Limited By Shares' earnings, revenue and cash flow.

A Different Perspective

While it's never nice to take a loss, Sichuan Lutianhua Company Limited By Shares shareholders can take comfort that their trailing twelve month loss of 4.7% wasn't as bad as the market loss of around 19%. Given the total loss of 4% 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'. 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. Take risks, for example - Sichuan Lutianhua Company Limited By Shares has 1 warning sign we think you should be aware of.

We will like Sichuan Lutianhua Company Limited By Shares 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.