While it may not be enough for some shareholders, we think it is good to see the Shenzhen Lifotronic Technology Co., Ltd. (SHSE:688389) share price up 21% in a single quarter. But in truth the last year hasn't been good for the share price. The cold reality is that the stock has dropped 34% in one year, under-performing the market.

After losing 5.8% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

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).

During the unfortunate twelve months during which the Shenzhen Lifotronic Technology share price fell, it actually saw its earnings per share (EPS) improve by 23%. It could be that the share price was previously over-hyped.

It's surprising to see the share price fall so much, despite the improved EPS. So it's well worth checking out some other metrics, too.

Given the yield is quite low, at 1.8%, we doubt the dividend can shed much light on the share price. Shenzhen Lifotronic Technology managed to grow revenue over the last year, which is usually a real positive. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

We know that Shenzhen Lifotronic Technology has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Shenzhen Lifotronic Technology stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

Shenzhen Lifotronic Technology shareholders are down 33% for the year (even including dividends), but the market itself is up 14%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.2% over the last half decade. 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. Before forming an opinion on Shenzhen Lifotronic Technology you might want to consider these 3 valuation metrics.

Of course Shenzhen Lifotronic Technology may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.