It's normal to be annoyed when stock you own has a declining share price. But often it is not a reflection of the fundamental business performance. The Jinling Pharmaceutical Company Limited (SZSE:000919) is down 21% over a year, but the total shareholder return is -20% once you include the dividend. And that total return actually beats the market decline of 24%. On the other hand, the stock is actually up 19% over three years. Shareholders have had an even rougher run lately, with the share price down 20% in the last 90 days. However, one could argue that the price has been influenced by the general market, which is down 14% in the same timeframe.

With the stock having lost 10% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

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).

Unhappily, Jinling Pharmaceutical had to report a 3.8% decline in EPS over the last year. This reduction in EPS is not as bad as the 21% share price fall. So it seems the market was too confident about the business, a year ago.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

It might be well worthwhile taking a look at our free report on Jinling Pharmaceutical's earnings, revenue and cash flow.

A Different Perspective

While it's certainly disappointing to see that Jinling Pharmaceutical shares lost 20% throughout the year, that wasn't as bad as the market loss of 24%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 2% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Jinling Pharmaceutical is showing 3 warning signs in our investment analysis , and 1 of those is significant...

Of course Jinling Pharmaceutical 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.