Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by Chongqing Pharscin Pharmaceutical Co., Ltd. (SZSE:002907) shareholders over the last year, as the share price declined 32%. That contrasts poorly with the market decline of 5.8%. Longer term investors have fared much better, since the share price is up 5.8% in three years. On top of that, the share price is down 5.0% in the last week.

With the stock having lost 5.0% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

View our latest analysis for Chongqing Pharscin Pharmaceutical

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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).

Unhappily, Chongqing Pharscin Pharmaceutical had to report a 2.1% decline in EPS over the last year. This reduction in EPS is not as bad as the 32% share price fall. Unsurprisingly, given the lack of EPS growth, the market seems to be more cautious about the stock. Of course, with a P/E ratio of 79.82, the market remains optimistic.

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

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

A Different Perspective

We regret to report that Chongqing Pharscin Pharmaceutical shareholders are down 32% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 5.8%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 0.9% 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. 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 4 warning signs for Chongqing Pharscin Pharmaceutical (of which 1 makes us a bit uncomfortable!) you should know about.

But note: Chongqing Pharscin Pharmaceutical 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.