Chongqing Pharscin Pharmaceutical Co., Ltd. (SZSE:002907) shareholders should be happy to see the share price up 27% in the last quarter. But that doesn't change the fact that the returns over the last five years have been less than pleasing. You would have done a lot better buying an index fund, since the stock has dropped 21% in that half decade.

On a more encouraging note the company has added CN¥401m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.

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 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).

Looking back five years, both Chongqing Pharscin Pharmaceutical's share price and EPS declined; the latter at a rate of 18% per year. The share price decline of 5% per year isn't as bad as the EPS decline. The relatively muted share price reaction might be because the market expects the business to turn around. The high P/E ratio of 98.62 suggests that shareholders believe earnings will grow in the years ahead.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized 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

While the broader market gained around 14% in the last year, Chongqing Pharscin Pharmaceutical shareholders lost 8.3% (even including dividends). 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 4% 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. 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. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Chongqing Pharscin Pharmaceutical (of which 1 is significant!) you should know about.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are 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.