For many, the main point of investing is to generate higher returns than the overall market. But even the best stock picker will only win with some selections. So we wouldn't blame long term Sichuan Haowu Electromechanical Co., Ltd. (SZSE:000757) shareholders for doubting their decision to hold, with the stock down 26% over a half decade. Furthermore, it's down 24% 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 15% in the same timeframe.

Since Sichuan Haowu Electromechanical has shed CN¥384m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Over five years Sichuan Haowu Electromechanical's earnings per share dropped significantly, falling to a loss, with the share price also lower. At present it's hard to make valid comparisons between EPS and the share price. However, we can say we'd expect to see a falling share price in this scenario.

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 Sichuan Haowu Electromechanical's earnings, revenue and cash flow.

A Different Perspective

Although it hurts that Sichuan Haowu Electromechanical returned a loss of 17% in the last twelve months, the broader market was actually worse, returning a loss of 25%. Given the total loss of 5% per year over five years, it seems returns have deteriorated in the last twelve months. While some investors do well specializing in buying companies that are struggling (but nonetheless undervalued), don't forget that Buffett said that 'turnarounds seldom turn'. 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. Take risks, for example - Sichuan Haowu Electromechanical has 1 warning sign we think you should be aware of.

Of course Sichuan Haowu Electromechanical 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.