Investing in stocks inevitably means buying into some companies that perform poorly. But long term LBX Pharmacy Chain Joint Stock Company (SHSE:603883) shareholders have had a particularly rough ride in the last three year. So they might be feeling emotional about the 53% share price collapse, in that time. And over the last year the share price fell 29%, so we doubt many shareholders are delighted. Furthermore, it's down 10% in about a quarter. That's not much fun for holders. However, one could argue that the price has been influenced by the general market, which is down 8.7% in the same timeframe.

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.

Check out our latest analysis for LBX Pharmacy Chain

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.

Although the share price is down over three years, LBX Pharmacy Chain actually managed to grow EPS by 9.3% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

The modest 2.0% dividend yield is unlikely to be guiding the market view of the stock. Revenue is actually up 18% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating LBX Pharmacy Chain further; while we may be missing something on this analysis, there might also be an opportunity.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

LBX Pharmacy Chain is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for LBX Pharmacy Chain in this interactive graph of future profit estimates.

A Different Perspective

We regret to report that LBX Pharmacy Chain shareholders are down 27% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 2.5%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 3% 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. 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 instance, we've identified 1 warning sign for LBX Pharmacy Chain that you should be aware of.

But note: LBX Pharmacy Chain may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.